The dollar has "gone out of steam"? The Opicon mutant strain has caused risk aversion, why can't gold benefit? The non-farm payrolls are about to reveal the answer.
At 21:30 Beijing time on December 3, the US Department of Labor will release the last non-farm payrolls report before the US December interest rate decision. The November non-farm payrolls report will determine how the market will take to end this volatile trading week.
After the Fed acknowledges that inflation has met the requirements for tightening monetary policy, it is up to the labor market, whether the labor force participation rate is rising and whether wage inflation will slow down will really affect the process of Taper. Fed officials will enter a "period of silence" next week, and if tonight's non-farm payrolls data is ideal, the tone of hawkish Fed officials is expected to be more firm.
Notably, at a congressional hearing this week, Fed Chairman Jerome Powell said Fed officials should consider accelerating the reduction at their next meeting. Powell's clear signal of potential policy action just two weeks before the next meeting is highly unusual. Powell's attitude has officially turned from dove to eagle, and announcing this change before this non-farm payroll may also hint that the Fed is full of confidence in this non-farm payrolls data.
Non-agricultural materials continued to increase significantly in November
According to a media survey of economists, non-farm payrolls could add 550,000 jobs in November and 531,000 in October. The unemployment rate is expected to fall to 4.5 percent from 4.6 percent in October.
Pepperstone analyst Jerry pointed out that the recent data also indicates that tonight's non-farm payrolls data is expected to achieve good results: ADP job growth is better than expected, the ISM manufacturing PMI's employment index has rebounded in the expansion zone for the third consecutive month, last week's initial jobless claims increased less than expected, the average initial petition number fell to a new low since March last year, and the number of renewals fell below 2 million for the first time since the epidemic. These all hint at strong job growth.
Judging from the expectations of major institutions compiled by Jinshi, the minimum expectation of the number of non-farm new jobs tonight is 450,000, and the highest is 800,000. In addition to the number of new jobs created, the wage data in the non-farm payrolls report is equally important, from which investors will judge the future trend of US inflation.
Ryan Detrick, Chief Market Strategist at LPL Financial, notes:
"We are optimistic that there will be another strong data suggesting that the economic foundations are still very solid and that we are watching wage growth for any signs that could trigger inflation concerns."
Andrew Hunter, senior U.S. economist at Capital Macro, said the vaccine regulations could prevent more Americans from working in the coming months, which would further dampen labor supply. He said in a note that tight labor conditions will keep wages rising, forcing firms to charge consumers higher fees for goods and services, "which will continue to drive prices higher unless productivity growth improves significantly."
The key question is, is the data tonight good enough to pave the way for the Fed to accelerate Taper this month and allow traders to quote more rate hikes, or is it bad enough for the Fed to slow down the pace of tightening?
It is worth noting that the impact of this non-farm market may also be erased by Omicron! The emergence of the Omicron variant could keep the labor force participation rate at an already weak level.
Sarah House, senior economist at Wells Fargo, said:
"If you see a surprise from non-farm payrolls, that might help speed up the Fed's debt-shrinking, but Omicron is really an unknown." Even if you get a very strong jobs report, the unknown risk posed by Omicron could deter the Fed. ”
Market impact
Fxstreet concluded that the November non-farm payrolls report is likely to be better than expected. Signs of a labor market and consumer economy suggest that the U.S. will continue to recover. The market's reaction to the non-farm payrolls report depends largely on the state of panic over the Omicron variant. If the jobs data are better than expected, they will support US Treasury yields and the US dollar, but the impact of Omicron needs to be noted. Even if non-farm payrolls are creating less than expected jobs, dollar and U.S. Treasury yields should benefit, as the Fed has hinted that demands for higher interest rates are on the horizon. Recently, US Treasury yields and stocks have fallen excessively, and employment data is about to remind the market of this.
(1) The foreign exchange market is expected to continue to fluctuate sharply, and the trend of the US dollar will be reconfirmed
DailyFX analysis said that although Fed officials frequently let go of hawks, the dollar does not seem to have received strong support in recent trading days. So far this week, the dollar index is up just 0.1%. This may reflect the fact that the dollar may have seen a stage of "positive outs", especially after Fed Chairman Powell announced the abandonment of the "inflation temporary theory". Whether the dollar index will further expand the correction in recent days, or quickly refresh this year's highs, the answer may be revealed after the release of today's non-farm payrolls data:
If the November non-farm payrolls report is overall better than expected and the dollar index rushes higher and falls, further indicating that the recent rally in the dollar is likely to overreact to the Fed's interest rate hike expectations, which indicates that the dollar index will face a large downward correction;
If the November non-farm payrolls report is overall better than expected and the dollar index continues to rally and refresh the year's highs, it means that the market is still betting more on the Fed to raise interest rates early. This situation may suggest that the dollar index may come to an end in recent drawdowns;
If the November non-farm payrolls report as a whole falls short of expectations, it is not excluded that the dollar index will have a larger short-term retracement. In particular, the Opichron variant has flowed into the United States, or it may exacerbate investors' concerns about the US job market.
Pepperstone analyst Jerry analyzed that the yield spread of the US 10-year and 2-year Treasury bonds narrowed from 130bp in October to 80bp (the yield curve is flatter) and has a further downward trend, fully reflecting that interest rate hike expectations have significantly boosted short-term yields, which is obviously a bullish short-term trend for the US dollar.
Jerry said that if the overall jobs report meets or even exceeds expectations, it may force the Fed to make up its mind to cut bond purchases at a faster rate, and the dollar may get a boost and continue to weigh on gold prices. Conversely, it will temporarily slow the expectation of a rate hike, causing the dollar index to adjust around 96.
(2) Gold: The "conspiracy" of the bears is about to be exposed?
The Omikeron mutation caused risk aversion, but gold did not benefit. In the past half a month, regardless of whether the news is positive or bearish, most of the gold prices have fallen.
Analysts say that this could suggest that the main force of the market is constantly deploying gold bears. Gold's sharp fall may be blamed on the Federal Reserve and its increasingly hawkish tone on the issue of interest rate hikes. Traders are starting to price more aggressive rate hikes in anticipation.
FXStreet gives the current nearest gold support at 1758.80, 1745.20 and 1734.90 respectively, while the nearest resistance above is at 1783, 1792.25 and 1803.85 respectively.
DailyFX technical analysis said that gold needs to break through the 1810~1815 area to bring more rebound momentum. If the downside loses 1770, the market may further expand the decline to 1754, 1720. Once below 1720, the bears are targeting or pointing to the previous low of 1678.
Source: Golden Ten Data