By Craig Erlam
Investors are taking a cautious stance ahead of Friday’s jobs report, a little spooked by Jerome Powell’s comments in Congress and fearful of being caught on the wrong side of another hot jobs report.
That’s clearly the danger at this point, that we get another hot report that confirms January was no blip and instead indicative of a labour market that not only isn’t cooling, but perhaps getting hotter.
The pre-January trend across many indicators pointed to a cooling in the economy and that was expected to eventually catch up to the jobs market, but a variety of data points at the start of the year threw that narrative into doubt.
I expect the February data and of the months to follow will see the pre-January trend continue, even accelerate, given the additional tightening that will have worked its way through to the economy since.
But following Fed Chair Powell’s comments, we may need to see clear evidence of that on Friday or further cracks could appear in equity markets.
We’re already seeing a move back to 50 basis point hikes being priced in, with that now seen as more likely than 25 in two weeks.
Powell’s comments fuelled that, although I still believe he chose his words very carefully to ensure it’s an option that’s taken seriously rather than the base case. The data over the next couple of weeks could potentially cement it.
Oil steady after Powell hit
Oil prices are treading water on Thursday, continuing to stabilise after Tuesday’s plunge on the back of Jerome Powell’s comments. There remain two dominant forces in the markets and recent activity has been evidence of that.
Anything that threatens the US economic outlook is a big downside risk, while stronger numbers from China are providing the bullish case.
But with neither certain, we may continue to see very choppy but ultimately range-bound trade. Friday’s jobs report will be the next test of that.
Gold holding ahead of jobs data
Gold once again ran into support around $1,800-1,810 this week, but that may only prove temporary if we get another hot jobs report on Friday. It may well be that the proximity to the report is what’s saved it for now, with technical support kicking in.
Suddenly two levels are really standing out, the support mentioned above and $1,860, a move above which would represent the break of a double bottom neckline and potentially indicate that a strong recovery, at least, is on the cards.
A major test for bitcoin
The crypto headlines have not been helpful this past week and have come at a time when broader market sentiment is crumbling, resulting in bitcoin breaking back below $22,000 and looking likely to go further.
Previous lows around $21,500 now offer the next test of support, a break of which could be a massive blow after such an encouraging start to the year.
Craig Erlam is Senior Market Analyst, UK & EMEA 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.
