What now after US jobs data? - FX, Equities, Commodities outlook
14:06, 10 March 2023
Well, that is it. The data that everyone was waiting for is out, and it seems like this time we may have some further clarity as to what is happening. Or not. Who knows.
The US jobs data saw an unexpected uptick in unemployment in February to 3.6%, after a surprise drop to 53-year lows at 3.4% in January. In general, the data release was slightly underwhelming with wages also dropping below expectations, which aligns with the belief that the January data was an outlier. But it isn’t a home run for equity bulls and Fed dovish hopefuls as the non-farm payrolls still added more jobs than expected in the month, and whilst the January reading was revised lower, it was marginal and still shows more than 500k new jobs were created in the first month of the year.
The reaction in the market has been to go with lower wages and higher unemployment, giving a boost to treasuries and equities, and a drop to session lows for the US dollar. But unfortunately, I think once the dust settles, there will be uncertainty and a struggle for clear direction as Powell’s hawkish comments on Tuesday are likely lingering at the back of everyone’s mind.
I doubt the data released today is going to make the Federal Reserve reconsider its interest rate path, which seems to be getting stronger by the day if recent comments are anything to go by. We are 12 days away from the March FOMC meeting and I don’t rule out further consolidation in the markets as traders eagerly await the interest rate decision - which has been teased as a possible 50bps hike - and the ensuing comments from Powell.
The FX space has seen some action this week which has been a nice change in momentum and one of the standout currencies has been the British Pound. GBP/USD has been pounding higher over the past three days despite an intense pullback on Tuesday on the back of Powell’s remarks to Congress. Initially, it looked like the pair had been sentenced to break out of its descending wedge and look for new yearly lows (which it did at 1.1802) but the reversal has been so strong that we may in fact be looking at a bullish breakaway from the recent pattern, with the pair needing to close above 1.2032 to consolidate the move higher. Again, we’ll have to see what happens once the dust settles and traders reassess their positions, but for now, the recovery seems to be holding up nicely heading into next week. The same can be said for GBP/JPY, which has had a helping hand from the BOJ delivering another meeting with an unchanged ultra-lose monetary policy.
GBP/USD daily chart
For equities, the uptick in unemployment and drop in wages has led to a pause in the bearish momentum which has taken over this past week. To be honest, both the S&P 500 and Nasdaq were looking over-extended after last Friday’s bounce and the move this week has realigned with the previous bearish path. Whilst the Nasdaq continues to hold above its 200-day SMA (11892) after finding support along it, the S&P 500 has closed below it for the first time since mid-January, a sign that the index might find it hard to break higher as resistance will likely arise along this line (3937). That said, the 2022 descending trend line is still in a position to offer support in the short term, with 3872 as the first point of contact.
S&P 500 daily chart
USD-denominated commodities like WTI, XAU/USD and XAG/USD have also benefited from the drop in yields and the US dollar following the jobs data release. US crude has snapped three days of consecutive losses but the bullish momentum is very fragile, meaning that a change in direction is unlikely at this point and the path of least resistance continues to the downside. Gold continues to find support just above the 1800 line but is struggling to consolidate further upside to break higher as the short-term moving averages (20-day and 50-day) are offering some resistance up ahead after a bearish cross. Silver seems to have found some support at 19.90 as the RSI starts to pick up above the oversold territory but the 200-day SMA (20.91) is lying close up ahead and is likely to limit the momentum from buyers heading into next week.
XAG/USD (Silver) daily chart