Soft jobs report pressures dollar, gold surges, stocks mixed

US jobs market cools more than expected

The US economy added fewer jobs than anticipated in June, calming fears about an imminent Fed rate hike and pushing full pricing further back into the year. Nonfarm payrolls grew by just 57k last month, while the April and May figures were revised lower by a combined 74,000 jobs.

The unemployment rate unexpectedly declined, however, largely due to a drop in the participation rate, which fell to a five-year low.

Expectations that the World Cup tournament would boost hospitability jobs in the host cities did not materialize. Instead, employment in the sector fell by 61,000, which is the biggest decrease since December 2020.

Whilst the June numbers may well get revised higher, they’ve removed the immediate threat of a surprise rate increase in July, and the September odds have also come down sharply. Investors now don’t see the Fed hiking before December.

Markets cheer bad data and oil slide

As far as markets are concerned, bad news is good news, as a cooler labour market means the Fed is more likely to achieve its 2% inflation target with only modest calibration in interest rates. The danger going forward is that the data could still go either way as job indicators remain mixed.

The jobs hard to get index – a sub-index of the consumer confidence gauge – jumped in June to the highest since the pandemic. This casts doubt on the latest drop in the unemployment rate, which historically has had a strong positive correlation with the jobs hard to get index.

At the same time, weekly jobless claims remain low, declining again last week, and other data continue to point to a healthy economy.

The Fed is more likely to stay on hold under such conditions, with the ongoing slide in oil prices further taking the pressure off for any tightening.

Oil prices look set to finish down for a fourth straight week, amid signs that traffic along the Strait of Hormuz is gradually recovering despite last weekend’s flareup between the US and Iran. With oil shipments from the Gulf on the up, as countries such as Saudi Arabia ramp up exports, investors are less bothered about the slow progress in the US-Iran negotiations.

Dollar tumbles, yen and gold make a comeback bid

However, the positive mood hasn’t been very kind to the US dollar, which is headed for its worst week since the early April truce in the Middle East.

The pound, Swiss franc and the New Zealand dollar have enjoyed the biggest rebound against the greenback, while the euro has also posted solid gains.

However, although the Japanese yen has reversed significantly from 40-year lows, its weekly gains stand at a more modest 0.5%. The yen hit a new low of 162.83 per dollar earlier in the week before intervention fears crept in, sparking a selloff in dollar/yen.

An actual intervention cannot be ruled out at this stage as the cause for yesterday's spike, but the dollar’s plunge has for now offered some respite for the battered yen. A fresh verbal warning earlier in the day by Japan's Chief Cabinet Secretary Minoru Kihara is helping to keep the currency on the front foot, last quoted at 160.93 per dollar.

With Japanese officials pledging to intervene at any moment without any warning, the yen might just be able to stabilize further in the coming days.

Gold has also found some love this week and is on track to snap a four-week losing streak. The precious metal is extending its rebound today, climbing to a 10-day high of $4,195, primarily on the back of the weaker dollar.

Stocks end choppy week on steadier footing

In equities, Wall Street closed mixed on Thursday ahead of the long Independence Day weekend. A further selloff in chip stocks pulled the Nasdaq 100 lower by 1.6%. But both the S&P 500 and Dow Jones closed in positive territory, with the latter jumping to a new all-time high of 52,900.

But the chip selloff appears to be easing, led by a strong bounce back in Korean chip giants. Shares in Europe are mostly in the green on Friday, while Nasdaq futures are up 1%.

AI-related stocks have become highly sensitive to any headlines about demand, dealmaking, debt financing and progress in AI development. Hence, this week’s whipsawing about is likely to continue for some time, at least in the lead up to the Q2 earnings season.