One of the great mysteries of human history, to my mind, is the significance financial markets keep attaching to the US labor market data released at the start of each month. The number of jobs created is very often revised sharply after the fact, and some of the data rely more on estimates and surveys than on hard facts. And once a year comes the big annual revision to payroll growth, which has more than once shown that close to a million originally reported jobs never actually existed.
Weak US labor data provide fresh tailwind
That said, it does make sense to watch these figures if you assume that most other market participants are watching them too and will react accordingly to a sharp deviation from forecasts. And that is exactly what happened last Friday: instead of the expected 80,000 new jobs, the US economy shed 23,000 jobs in July. And that was not all — the gains for the two prior months were revised down by a combined 103,000 jobs. Markets reacted by the book: the probability of Fed rate hikes over the coming months was priced slightly lower in interest rate futures markets. Treasury yields fell as a result, and the US dollar came under a bit of pressure. For gold prices, which had already started marching north the week before, this provided a further tailwind.
US consumer prices land exactly on forecast
Markets also focused on yesterday's US consumer price data, which could have triggered sharp market moves had they deviated significantly from forecasts. Instead, the data matched expectations exactly — credit is due to whoever produced those forecasts. Core CPI, which strips out energy and food prices, rose 2.5 percent year-on-year, its mildest increase since March 2021, making a Fed rate hike in September look less urgent. That sent gold on a jump to a two-month high. This morning, gold is trading a touch lower, likely on the back of a somewhat firmer US dollar.
Gold posts a solid weekly gain
Gold was trading at around US$4,240 per ounce on Wednesday afternoon last week; by the time markets closed Friday, a further push higher had taken it to around US$4,345 per ounce. That tailwind lasted until yesterday afternoon. This week's high so far was marked just below the US$4,450 per ounce level. As of this writing at 8:00 a.m., gold is trading a bit lower, at US$4,385 per ounce.
Xetra-Gold price also climbs
The Xetra-Gold price likewise gained ground over the past few days. During regular trading hours, it rose fairly steadily from €117.90 per gram on Wednesday afternoon last week to €123.60 per gram yesterday afternoon, though it opened today's session somewhat lower, at €122.50 per gram.
Outlook: producer prices and geopolitical risk in focus
After US consumer prices comes US producer prices, due out this afternoon. These matter because part of that data feeds into core PCE, the inflation gauge the Fed relies on for its monetary policy decisions. Financial markets will also keep watching the Middle East, where developments will continue to influence prices across all asset classes. Otherwise, the coming days look fairly quiet on the macro data front — and it seems half the trading desks are on vacation right now anyway.
I wish all readers a wonderful summer weekend, before summer looks set to take a bit of a break next week.