The US Bureau of Labor Statistics reported employment data last Friday; the tightness continues except in the manufacturing sector, where there were no gains. The data showed that US employers continued to increase wages to attract the talent they needed to pursue profits. Equity markets reversed recent losses and rallied on the good news. But is it? Fed Powell's comments of the past suggest that rate cuts are dependent on the data. He has only recently reiterated this. This data has an inflationary draft to it, and thus, the June rate cuts that the market has been looking forward to will be, as suggested previously, pushed out till later in the year. A meeting of top OPEC+ ministers last week decided to keep its oil supply policy unchanged and further pressed some member countries to increase compliance with their output cuts. This decision supported the international crude prices and spurred the Brent oil contract to its highest level in five months, topping out at $91.92 a barrel in last Friday’s trading. This potentially picks up the prospects for a resurgence in energy inflation. US Equity markets continued to rally on the news, reversing some of the deep losses from last week when the market realised no rate cuts would be happening for some time. Gold continued its record run and remains well bid, and iron ore fell to a 10-month low of 102.00 per ton in Tianjin, reflecting an oversupply or lack of demand.
But first, let's take a deeper dive into the US Labor market data. The latest report from the US Bureau of Labor Statistics on employment data, released last Friday, offered a mixed picture of the labor market. The overall employment markets remain tight; non-farm payrolls came in above expectations at 303k, the unemployment rate dropped to 3.8%, and the participation rate edged higher to 62.7. What makes this data interesting is that average hourly earnings MoM edged higher by 0.3%, indicating a slight push that could filter through to inflation gauges. Add to this mix ISM Manufacturing data, earlier in the week showing prices continuing to trend higher in a weaker manufacturing labor market and the MoM inflation rate edging higher than expected at 0.4%; this was the highest point in five months. Despite this, US employers continued to increase wages in an effort to attract the talent needed to drive profits. The news initially spurred a rally in equity markets as investors reacted positively to the prospect of robust wage growth. However, upon closer examination, questions arise about the sustainability of this trend. While this continues, we can suggest that Fed Powell will be pulling in the reins on any potential easing. We can rule out any tightening of policy for the time being, but it would be prudent not to discount some form of action if price pressure persists. However, it does mean that the US economy will have higher rates for longer, and in some sectors, this was reflected negatively in an environment that showed the volatility in earnings was persisting. Particularly as the cost of energy increases as a result of last week’s OPEC+ meeting.
In the realm of oil markets, the commodity remains bid, a meeting of top OPEC+ ministers convened last week to discuss the group's supply policy. Despite calls from some member countries to increase compliance with output cuts, the decision was made to maintain existing supply levels. This outcome provided support for international crude prices, with the Brent oil contract reaching its highest level in five months, nearing $91.92 a barrel. The decision by OPEC+ to hold steady on supply levels has raised expectations for a potential resurgence in energy inflation, contributing to some negative potential sentiment emerging in company earnings. Furthermore, geopolitical risks from both Ukraine and the Middle East remain elevated and are providing support to the market. An additional risk that is not in any way helping any decisions the FED needs to make on monetary policy. But regardless of these negative aspects, traders continue to buy the dips on equities.
The Dow, NASDAQ, and S&P all took a dive last week on the back of expectations that the Fed will delay easing rates. However, the losses were reversed as investors linked growth in Non-Farm Payrolls and a dip in the Unemployment Rate as being positive for equities. The Dow came close to ringing the 40,000 bell and has traded back to major support of 38,500. The rebound from the selloff will be keenly watched. Expectations still remain for softer levels as inflation is still a concern.
The stubborn inflation rate and geopolitical uncertainties have further stoked demand for gold as a safe-haven asset. Escalating tensions between global superpowers, geopolitical conflicts, and trade disputes have heightened market jitters and fuelled risk-on sentiment. Gold traded to a new high of US2329 and closed on its highs, indicating that this rally is not yet over. The demand side remains fixed, with traders and central banks providing a mix of support, whilst on the supply side other dynamics such as declining ore grades, rising production costs, and environmental concerns have weighed heavily on output. Gold's poorer cousin, Silver, also closed the bid, and we expect that more catch-up is needed here.
It will be a very busy week in the United States and will capture investors' attention with its inflation rate and FOMC minutes. Adding to the watchlist are Michigan consumer confidence, producer prices, and export and import prices, complemented by several speeches from Federal Reserve officials. The YoY inflation rate is forecast to come in at 3.4%, which is 0.2% higher than last month’s read. However, the MoM is expected to be softer, increasing by 0.3%. But it is still an increase and will be the 6th monthly increase in a row.
On the position front, we remain with a small, … in the S+P (5203) and we added another … at 5232. We are still … USD/JPY at 147.36 and looking for another entry point. Our timing was not the best on this trade. In the other currencies, we are still … both the AUD/USD (US0.6770) and AUS/CHF (0.5707). In the gold market, we are looking for another entry point as … our positions too soon; however, we … to the silver market at USD 24.95.
Trade Focus:
Fundamentals:
Silver: Silver remains undervalued and has not performed all that well considering where Gold is trading. The fundamentals remain super supportive the metal …
Technical Analysis:
The market closed on its highs, up 2.13% last Friday, which indicates that there is more to this move. Technical resistance stands at …
Support …
Resistance …
Momentum …
