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US stocks are rebounding with Nasdaq futures contract up 0.8% this morning. Behind the rebound, the dollar is weakening and investor appetite is regaining momentum on rumors that China could potentially ease its harsh Covid restrictions. We are closely watching the US jobs market report, released an hour before the US market opens. The unemployment rate is projected to tick higher to 3.6%, and non-farm payrolls (NFP) are expected at 200k. A lower NFP number or higher unemployment rate would be positively interpreted for markets, giving reasons to the fed to loosen policy.

The Fed hiked interest rates by 75bps to a baseline rate of 4%, as expected. Stocks exploded higher, reversing the day's losses after investors saw encouraging dovish language in the Fed's FOMC statement. The changes can be summarised in that the Fed will take into account the cumulative interest rates increases, as in it is readying to slow down the pace of hikes. Nonetheless, traders shouldn't expect a significant dovish 'pivot' either, as the Fed remains determined to bring inflation down to 2%. Powell will have a chance to give more details later in his press conference. The 10-year Treasury yields slipped below 4% on the news, helping risk assets stage a rebound. 

A surge in UK inflation still at a 40-year high is adding pressure on Gilts yields, last seen just above 4% up by 8 bp, as traders bet the Bank of England will continue its aggressive rate hikes to battle inflation. In the US, yields on the 10-year jumped 7.5bp to 4.07%, pressuring stock futures lower. Inflation continues to be the most watched as higher sovereign yields are pressuring down valuations of financial assets. Investors are also worried about the draining liquidity in sovereign bonds markets. Today, earnings will be adding to volatility as names such as Abbott, P&G, IBM, Lam, and Tesla report.  

US month-over-month Core CPI (less food and energy) came at 0.6%, versus 0.5% expected, for the month of September. Year-over-year came at 8.2%, versus 8.1% expected. The inflation data puts more pressure on the Fed to tighten interest rates, as it shows the fastest pace of interest rate hikes ever is not yet bringing inflation back down. Markets tanked 2.5% on the news and yields on the 10-year edged back up towards 4%. 

Markets are tense this morning as investors digest the jump in oil prices last week and the 'reset' of expectations of the Fed keeping interest rates higher for longer after a key US jobs report deemed 'too strong'. The Fed minutes on Wednesday, followed by the US September CPI inflation report on Thursday is set to capture all attention. Earnings starting mostly before US market open on Thursday and continuing Friday will large banks will likely add volatility as investors attempt to guess what is already 'priced-in' as the S&P500 & Nasdaq100 have fallen 24-33% year-to-date. In forex, traders may look for a break of the dollar strength after the significant move last week. The euro, Swiss franc, and pound could recover if sentiment stabilises and the fear factor of an imminent earnings meltdown or recession comes down.