US Non-Farm Payroll miss raises the chances of a 50 point Fed cut
US jobs data raises the prospect of a 50 basis point Fed cut and drives gold to record highs
A weakening US labour market deeps Fed rate cut expectations and drives gold to new record highs.
US Non-Farm Payrolls misses expectations, puts 50 point Fed cut on the table
It’s the Fed black out period now meaning no chatter from officials before next week’s FOMC decision. Friday night’s jobs data was weaker than expected and only added to the case for rate cuts. Employment increased by a measly 22,000, well below expectations, with the unemployment rising to 4.3% as expected. There were also further downward revisions to previous months data. The markets have basically fully baked in a 25 point move at the upcoming meeting. A 50 point move is also back on the table and the markets are suggesting a high probability of the equivalent of three cuts by the end of the year. US inflation data is the biggest release of the weak and is tipped to show continued stickiness in prices, albeit not enough to derail rate cuts from here. If it comes out a little higher than expected, that could rock the boat slightly.
Global equities still remain around record highs and investors are ostensibly treating the slowdown as a “bad news is good news” scenario because of expected rate cuts. The flow is going into tech names which are “growthier in nature” with cyclicals sold on the prospect of a weaker US economy. The US Dollar is also subsequently weaker. Gold prices are shooting to record highs, driven by a number of tailwinds, but with the pricing in of rate cuts and – to a lesser extent – the threats to Fed independence the major factors. Oil prices are also falling because of a deteriorating demand backdrop but also the prospect of a greater supply glut after OPEC said it expects to increase output in October.
Gold rallies to record highs with $US3600 in sight
The rally in gold has pushed it towards the $US3600 handle as the prospect of US rate cuts lower front end yields and weakens the US Dollar. The several tailwinds are supporting gold, including threats to Fed independence, geopolitical risks, and evidence that several major central banks are buying the commodity to diversify away from US assets. The $US3600 level stands out as a psychological resistance level. Previous record highs around $US3500 may be a level of support.
(Source: Trading View)
(Past performance is not a reliable indicator of future results)