Major US indices closed Wednesday’s session in the green, but today’s employment figures could rapidly change the market mood. The latest US jobs data will give an indication of how fast the US labor market is progressing towards the Fed’s policy goal, and how close we are to the ‘substantial’ progress that the Fed pursues to trigger the most-apprehended tapering of its massive bond-buying program.
The US economy is expected to have added close to 700’000 new private jobs during the month of July, near the amount added a month earlier. We know that the actual print could be significantly lower or higher than the estimated figure, but as long as we see a figure above 500-600’000, investors should walk confidently into Friday’s NFP data. A read below 500’000 should throw the mood off the cliff, as there is not much to awaken the Fed doves with inflation hovering above the 5% mark. A strong read, on the other hand, should accelerate the thinking that the Fed will get to the tapering stage quicker than otherwise. That could apply a certain pressure on the US stocks, but it’s always better to walk towards an inevitable policy tightening with a set of strong economic data than the contrary.
Now, the fact that the delta variant of the coronavirus is spreading fast is increasingly worrying, as the latest news alters the prospects of economic recovery, especially if governments decide to move toward stricter lockdown measures to break the transmission chains. The problem is the central banks already deployed all measures to help economies go through the pandemic, and should now deal with overshooting inflation, and not another heatwave.
Therefore, the abnormally low US yields should rebound sooner rather than later. Would strong US jobs data help to mark a turning point is yet to be seen? Yet, gold’s inability to benefit from the low US yields hints that the next direction for the yellow metal is certainly the south.
