The latest jobs data from the US was very much open to interpretation, with the data providing something for both the hawks and doves regarding US interest rate outlook. Those looking for signs of cooling can point towards the push higher in the unemployment rate (from 3.5% to 3.8%) and the pace of average hourly earnings easing. While anyone looking for signs of strength can point towards the 187k headline figure of jobs creation (above the 170k forecast and the 157k prior reading). The reaction of markets also highlights the jumbled picture presented by the jobs data, with stocks on the Dow rising while treasury yields, and the USD also ticked higher.
Overall, if you want to look through the jobs data for reasons for the Fed to stay on hold, you can find them. Similarly, if you combine the headline NFP ‘beat’ with the higher ISM Manufacturing PMI and Manufacturing Prices data, a case could be made that the Fed still has a job to do to bring inflation down to the 2% target.
On balance, the FOMC will be reasonably happy with the figures on the whole, because at the very least it will buy them some time to keep rates steady this month. Because had we seen a particularly hot jobs print it would have put them in an uncomfortable position for the September meeting. But while September should now be an easy call for the Fed, they could still have some headaches in the closing months of the year.
The DXY jumped back above the 104 level while treasury yields improved following the jobs data. The US 10-year yield is moving back in the direction of 4.20%, which gave the greenback a lift from a yield perspective.
The USD gains were also assisted by a downturn in the Euro over questions about how aggressive or otherwise the ECB might be over coming months regarding interest rates. The DXY had gained 4.6% since mid-July (July 18th) on the back of expectations that monetary policy in the US will remain tight for the foreseeable future (With cuts not expected until mid-2024 at this stage).
The AUD is trading about three-quarters of a cent lower than its peak from last week, with the currency feeling the pinch from the rising Dollar. The AUDUSD sits at around 0.6450. It’s shaping as a volatile week for the Aussie Dollar with plenty of event-risk on the economic calendar.
Eyes on the RBA’s next move
The RBA is expected to stand-pat on rates this week following the tame CPI reading, however the messaging of the bank will be closely watched. Meanwhile there is also the local GDP print and trade balance data to look forward to.
Elsewhere, Chinese macroeconomic indicators will again be under the spotlight this week in the form of trade balance and inflation data. It is unclear whether there is more downside yet to come regarding Chinese economic activity, or if the trough has indeed been reached. As such investors will be looking for clues as to which of these scenarios is more likely as the macroeconomic data plays out.
Gold’s rally fades
Meanwhile, gold was unable to mount much of a rally given the resilience exhibited by the USD and yields. Gold is hovering under resistance at the $1951 level in thin trading conditions (given the US holiday). The precious metal will likely be depending upon treasury yields taking a step lower in order to make a push to $1950 and beyond this week.
OPEC cuts prop oil prices up
Oil is on the charge with OPEC+ cuts continuing to prop up the price. The WTI contract starts the week around the $85.10 level. If we do happen to see a pullback in the USD materialise, oil will start to look more attractive (to offshore investors), in which case it is conceivable that we could soon be staring at $90 per barrel (for the WTI contract).
The risk over the coming week for oil is the upcoming Chinese data releases. Any further signs of deterioration from the world’s second largest economy could cast a shadow over the demand outlook.
Market commentary and analysis from Tim Waterer, chief market analyst at KCM Trade