Market News

US Jobs Data to Shape Interest Rate Outlook

July 3, 2024

Mildly comforting comments from Fed Chairman Jerome Powell on inflation held the USD and treasury yields in check, however both remain poised for potentially further upside depending on how key jobs data at the back end of the week plays out. Powell noted that there had been progress on inflation in the past few months, though he stopped well short of saying that policy loosening is imminent. As a result, stock markets found some encouragement, while the greenback and bond yields took a breather. But essentially, this week is going to all about the ‘big daddy’ of macro indicators, that being NFP (Non-Farm Payrolls) on Friday.

Along with CPI readings, it is the jobs market stats which have shifted the needle the most with regards to delaying the rate-cutting expectations from the Fed. NFP figures have surpassed consensus forecasts on six of the last seven releases, with the April NFP data being the only blip so far in 2024 with a downside miss. Despite challenges on the manufacturing side, there has been sufficient service sector strength to ensure that the overall jobs market has remained a source of inflationary pressure and therefore something of an obstacle to the Fed initiating that first rate cut.

This week, expectations are that the June jobs figures will show growth of approximately196k. If we happen to see a miss on the low side of this (e.g. 160-170k), this could increase market optimism for a potential September rate cut. However, if the labour market momentum remains and NFP produces a result north of 200k, the USD and treasury yields could take a step higher if markets start to lean towards a November cut. In other words, this week’s NFP release could be a key fulcrum around which Fed interest rate expectations may shift.

In FX, the US Dollar Index (DXY) is hanging around the 105.65 level, thanks in large part to ongoing yen weakness. The yen is having a throwback to 1980’s levels, which, nostalgia aside, must be creating some nerves for Japanese monetary officials given the downsides of a weaker currency from an importing perspective. After the last intervention effort had a short-lived effect, Japan may be wary of trying to fight the bond yield spread which is hampering the yen. Nonetheless, the intervention-watch continues whilst the USDJPY rate trades above 160.

Gold continues to trade in a well-worn range in the absence of fresh catalysts. The precious metal has been finding a home in the $2320-$2336 range this week, with a break to the upside being elusive whilst the USD and treasury yields remain at elevated levels. Support waits at $2309, and further out at $2272. While resistance at $2350 needs to be surpassed if gold is to have a run at the next key level at $2369. Gold is in rangebound-mode, though the NFP release this week could shake things up if we see a shift in rate-cut expectations for the Fed.

The oil price remains supported by a combination of geopolitical and seasonal factors, which is keeping the risk tilted to the upside. Tensions in the Middle East have not abated, while hurricane season and the northern hemisphere summer demand outlook are also propping up the price. The WTI crude contract had a brief run above the $84 per barrel level before easing, thanks to resistance around the $84.20 region. While support lies at $81.76 and $80.42.

Looking ahead, markets will be watching the ADP private jobs figures (Wednesday in the US) in the lead up to Friday’s all-important NFP data in what is an interrupted trading week due to the 4th of July holiday in the US. Overall, the jobs figures this week will tell the story as to whether we are looking at a potential September or November rate cut from the Fed, and risk assets will react accordingly.

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