Data round-up
Although the headline non-farm payrolls number came in at 206k jobs, topping forecasts for 190k jobs, the internals of the report were weak. The unemployment rate rose to 4.10% against the forecast of 4%. Notably, the unemployment rate in January and April 2023 was at a 50-year low of 3.4%. June data triggered the consensus rule, a real-time bearish indicator.
According to this rule, a recession is underway if the three-month moving average of the national unemployment rate rises 0.50 percent or more, compared to its low during the previous 12 months. This is a positive development for the metal. The net payroll number for the previous two months was reduced by 111,000. However, average hourly earnings were in line with forecasts.
Earlier in the week, we noted that claims were up for a ninth consecutive week, the longest since 2018, showing the difficulties people are facing in finding new jobs. In a notable development, the US ISM services sector unexpectedly contracted at the fastest pace in four years as the services gauge edged to 48.80, compared to estimates of 52.70, although the S&P Global US Services Index (June) rose to 55.30, the highest since April. 2022. ISM Services data showed the second contraction in the past three months as new orders entered the contraction zone at 47.30.
Challenger, Gray and Christmas Inc. U.S.-based employers announced 48,786 job cuts in June, the highest number for any June since 2009, excluding the pandemic period. Factory Orders (May) at -0.50% were below forecasts of 0.20%. FOMC minutes (June 12 meeting) show that policymakers wanted more evidence of cooling inflation before the Fed began cutting rates.
China’s Caixin PMI Composite fell to 52.80 in June from 54.10 in May as the services PMI came in at 51.20, the lowest since October 2023, against a forecast of 53.40.
In her speech at the ECB Central Banking Forum in Sintra, Portugal, Fed Chair Powell said that while the US economy is strong, the Fed will cut rates if the economy weakens.
US Yield/Dollar Index
US ten-year yields fell from 2.15% to 4.28% on Friday in response to a soft nonfarm payrolls report. Yields fell more than 2% on the week. Two-year US yields fell nearly 3% on a weekly basis. The US dollar index closed down 0.24% at 104.88; The index was down about 1% for the week.
Next week’s data
Key US data on tap includes US CPI, weekly jobless claims, PPI, preliminary University of Michigan consumer sentiments and both short-term and long-term inflation expectations. Additionally, traders will await French election results and Fed Chair Powell’s testimony before the Senate Banking Committee and the House Financial Services Committee.
In addition, China’s PPI and CPI (June), and Euro-zone factory orders (May) and retail sales (May) will also be in focus.
Outlook
Expected weaker-than-expected US ISM services and softer-than-expected US non-farm reports boosted the chance of a rate cut in September. Traders have become more optimistic of a rate cut in September as the job market softens, leading to a rate cut by the Fed. The probability of a September rate cut is 72%, up from 57% a week ago. Gold is expected to trade with a positive bias next week unless the US CPI data turns out to be hotter than expected.
Support is at $2365/$2338. Resistance is at $2400/$2450.
(The author is Associate Vice President, Fundamental Currencies and Commodities at Sherkhan by BNP Paribas)
(Disclaimer: Recommendations, suggestions, opinions and views given by experts are their own. These do not represent the views of Economic Times)
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