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Markets mixed on China downgrade, NFP in focus

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By Lukman Otunuga, Senior Market Analyst at FXTM  

European stocks were a mixed bag on Tuesday as investors digested a cut in China’s credit rating to ‘negative’ from ‘stable’ by Moody’s amid concerns over its debt levels.

US futures flashed red amid the cautious mood with investors directing their attention to Tuesday’s incoming ISM Services PMI report.

Looking at commodities, gold remains under pressure despite hitting an all-time high above $2148 in the early hours of Monday.

US NFP in focus

It is a data-heavy week for the US economy with all eyes on the latest non-farm payrolls report on Friday. The consensus expects the US economy to have created 185,000 jobs last month, while unemployment is forecast to remain unchanged at 3.9%.

As far as markets are concerned, the Federal Reserve’s hiking campaign is over with the next move being a rate cut in 2024. Dovish comments by Fed Chair Powell last Friday simply reinforced these expectations with traders now pricing in a 71% probability of a 25-basis point cut by March 2024.

Should overall US economic data disappoint along with the NFP report, this should bolster bets around the Fed cutting interest rates during the first quarter of 2024, weakening the dollar as a result. A stronger-than-expected jobs report may push back rate cut bets, potentially allowing the dollar to stabilise.

Gold

Gold extended losses on Tuesday after the explosive movements in Monday’s Asian trading session saw prices skyrocket to an all-time high, before reversing those gains and more.

The precious metal is under pressure on the daily charts with prices less than $30 away from the psychological $2000 level. Although fundamentals remain in favour of the bulls, the technicals are looking bearish on the daily charts.

The precious metal could see more volatility this week due to geopolitical tensions and key US economic data including the NFP report. In the meantime, the negative momentum could drag prices towards the psychological $2,000 level in the near term.

 

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