By Edward Moya
The US economy is clearly not slowing as fast as many were thinking as the labour market remains robust. America added 372,000 NFP jobs in June, much better than expectations, paving the way for the Fed to focus solely on inflation at the end of month policy meeting. The unemployment rate remained steady at 3.6% and wage gains continued.
This strong non-farm payrolls report means that the Federal Reserve should still be good to go with a 75 basis-point July rate hike. US stocks initially came under pressure as markets priced in another aggressive Fed rate hike.
Wall Street should get used to a choppy stock market for the rest of the summer as the Fed tries to navigate a soft landing. Stocks settled slightly higher as a decent NFP report didn’t really shift expectations too much over Fed tightening.
Traders couldn’t remain that bearish over news that the consumer is better-off-than what many were fearing.
The front end of the curve is telling us that the Fed has the greenlight to relentlessly fight inflation, while the long end is saying a recession is brewing. A lot of the economic indicators are showing clearer signs of weakening, so expectations should still remain high that the labour market will probably be slowing down in the Fall.
The focus shifts quickly to next week’s CPI report and even mildly hot inflation numbers will allow the Fed to tighten again by 75 basis-points. If inflation delivers another upside surprise, the September meeting could see expectations fully priced in a half-point rate increase, but that could easily go up to 75 basis-points.
Shinzo Abe’s legacy
The assassination of Shinzo Abe stunned the world.
Abe was Japan’s longest serving prime minister. He brought political stability to Japan and helped usher in some prosperous times, with the best period being between 2015 and 2017.
He is known for his Abenomics, which was an aggressive economic growth strategy. Abe was respected around the world and helped bring Japan back to the front of the global stage.
Abe was killed after being shot while giving a speech at a political event. Japan’s PM Kishida said, “we must protect elections as the foundation of democracy.”
Japan is expected to hold upper house elections this Sunday.
Twitter losing feathers
Twitter shares are declining over fears Elon Musk’s acquisition is falling apart.
The Washington Post reported that the deal is in ‘peril’ as Musk’s camp can’t confirm Twitter’s claim about spam accounts. The deal was already feared to be falling apart, but the contract Musk signed will make it hard for him to break away from it.
The $44 billion dollar deal is in jeopardy but there is still a good chance the deal will get done, but possibly at different terms.
GameStop in turmoil
GameStop is declining after firing its CFO and announcing layoffs.
Investors are quickly forgetting the buzz from the 4-for-1 stock split. How many turnaround plans will GameStop go through before people realise it is not a leading company in the blockchain world.
Meme stock mania is slowly dying here and GameStop will struggle to maintain long-term investors.
Crude oil edges higher
Crude prices edged higher after the June labour market report showed the US economy is strong.
Economic growth fears may have been overdone as the oil market looks poised to remain tight for the foreseeable future.
After testing the mid-$90s, the selling pressure for WTI crude has been completely exhausted. Oil prices will likely comfortably trade above the $100 a barrel level as the risk of interruptions to supplies remains elevated.
Kazakh and Russian oil shortages could keep oil prices heading higher into next week.
Gold sees minor rebound
Gold prices are turning positive as financial markets appear to be close to pricing in Fed tightening.
Gold’s terrible week was driven by recession fears and as the dollar surged following the surge with the short-end of the Treasury curve. Technical selling of gold remained extreme throughout the week and the Friday rebound might be short-lived.
Gold could still be vulnerable to a decline towards the $1650 to $1675 zone before buyers are willing to return.
Bitcoin sole driver of crypto
It has been a good July for Bitcoin. The end of the first half of the year saw peak pessimism for the entire crypto market and that kept many traders on the sidelines, many of whom were eyeing another major collapse at around 50% or more.
What has changed from just a few weeks ago is that Wall Street is getting close to feeling they have fully priced in Fed tightening. A robust nonfarm payroll report has pretty much confirmed a 75 basis-point rate increase later this month.
After it became clear that the short-term selling momentum ran out of steam, Bitcoin has been stabilising even as risk aversion remains the dominant mindset on Wall Street.
Edward Moya is Senior Market Analyst, The America’s at OANDA
Opinions are the author’s, not necessarily that of OANDA Global Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. Losses can exceed investments.
