Investors have already had plenty of economic releases to digest this week, but arguably the most crucial data point as far as the Fed is concerned will be the Non-Farm Payrolls (NFP, due for release Friday).
There have been indicators that the US jobs market is finally starting to lose some of its tightness, and if the NFP print confirms this trend, it will be one less thing for the FOMC to worry about given labour market resilience has long been a source of inflationary pressure.
The NFP data produced an upside beat for 15 months in a row before missing on the downside on the last two occasions, so there are definite signs that previous rate hikes are having the intended cooling effects.
Having said that, if the NFP data comes in on the high side (forecast is for 170k) we could see expectations tilt back in favour of the Fed needing to tighten again before year-end.
So, as is usually the case, the NFP print will be a source of volatility for markets given the potential interest rate implications. The bond market will be worth keeping a close eye on as the NFP result hits the wires. The 10-year yield has been on the slide this week as softer macro indicators have rolled in. A below-forecast NFP print could open some further downside in treasury yields, which would add pressure to the USD.
The DXY has been having a bad week on the back of data showing that the US economy is easing. The Dollar Index has popped up from the lows however, to trade around 103.50. This pullback in the USD and treasury yields has made gold look more attractive.
With yields in the bond market descending, the opportunity cost of holding the precious metal has effectively decreased which is why gold has been back in favour with investors this week.
Gold trading just shy of resistance level
Spot gold was last seen trading at $1942, just shy of resistance at the $1947 level. If we get more evidence that the US jobs market is cooling, then we could expect to see more forward progress in the gold price.
There was some more Chinese data to assess today, with the Caixin Manufacturing PMI coming in at 51 (versus 49 expected and 49.2 prior). Coming on the back of the higher than forecast official Manufacturing PMI print (released yesterday), there are at least some tentative signs that the measured policy response from the PBOC may have ‘stemmed the bleeding’ regarding the economic downturn.
Also, today it was announced that the PBOC would reduce the FX reserves requirement from 6% to 4%. This move prompted a modest adjustment higher by the yuan. Despite the better Chinese data print today, I suspect that investors will likely require a lot more convincing that an economic turnaround is afoot.
Market commentary from Tim Waterer, chief market analyst at KCM Trade
