Monday, 7 August 2017

US stock indexes, the dollar and gold in focus

Posted by Anonymous at 13:59 Labels:

That’s right. The employment report was a big thing, but the party is far from over. In fact, jobs data was only the welcoming show. Next stop: inflation on Friday.

The US dollar is holding steady on early European hours on Monday following last week’s supportive employment report. According to the Labor Department, the economy added 209,000 jobs in July, above from an initially forecasted jobs build of 183,000.

And that wasn’t all. The unemployment rate ticked down to 4.4 percent, giving one more sign to investors (and the Federal Reserve authorities) that the country remains on the right path for rate tightening in the upcoming months.

As we’ve mentioned no one time in these articles, labor market conditions and inflation growth are both key elements for the FOMC to justify their monetary policy normalization process.

So far this year, the Fed raised interest rates in two opportunities, while leaving an open door for a third hike later in 2017. At this stage, short-term rates range between 1.00 and 1.25 percent.

A 25 basis points increase is seen happening in December. According to Fed funds tracked by CME Group’s FedWatch program, traders are currently pricing in a 42.5 percent probability of it.

US stock indexes ended to the upside on Friday, as investors were cheered by optimism considering the labor market is getting closer and closer to what can be called full employment.

Another significant point on the employment report was an increase on average hourly earnings by 0.2 percent, which actually was the largest rise since October 2016. Higher wages could interpreted as more money on Americans’ pockets, which means higher consumption.

Market participants are now looking ahead to a key inflation report on Friday. The consumer price index for July will be publish as of 12:30 GMT, with analysts estimating a 0.2 percent growth month-over-month and a 1.7 percent jump for the yearly measure of the core index.

If the inflation report supports the case for a third rate hike in the year, then we suggest keeping an eye on the US dollar, safe heaven gold and major stock indexes. Following the case, the greenback would extend gains, while the yellow metal and indexes are likely to head south.

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