Ascending treasury yields and a dominating Dollar have been among the prevailing market themes this week, and the next batch of US jobs data could either extend the rally or put a stop to it. That’s because investors are still piecing together all the macro gauges to see how much validity there is to the prospect of one more Fed hike by year end.
Any upside surprises in the labour market could serve to keep the potential of a further 25bp of tightening in play. Markets will likely be content with a figure of around 200k of jobs creation for July, but if we happen to see a figure nudging more towards 250k or above, yields and the USD could be reaching even higher.
Particularly after the bumper ADP private jobs figures seen earlier in the week. In any event, the NFP could provide some lively trading given the run-up in treasury yields and the USD over the course of the week.
News that Saudi Arabia and Russia will continue to tighten the screws on the supply side have bolstered the oil price. This, combined with some rare good economic data from China (in the form of the Caixin Services PMI data released on Thursday) has seen the oil price recover from a momentary dip.
The WTI contract is now trading at $81.50. The oil market will be waiting to see if there is any further hawkish rhetoric or action stemming from the OPEC+ meeting.
The story of rising yields and the USD has been suppressing the gold price. The precious metal is struggling around three-week lows with the spot price hovering around US$1936. Support lies at US$1920, with immediate resistance at $1945.
For gold to start making some forward progress we will likely need to see an adverse reaction of the USD to the NFP figures. But for the meantime, gold is trading tightly and without much spark, mostly because it’s losing out in terms of relative yield attractiveness.
With the upcoming US NFP data posing some event-risk, Asian equity markets were mostly content to just meander along to round out the week. Tentative trading has been the order of the day, at least until we get the next crucial read on the state of play of the US labour market. Particularly as a continuation of a strong jobs market could have interest rate implications in the back half of the year.
Market commentary and analysis from Tim Waterer, chief market analyst at KCM Trade
