The Big Picture : It's a matter of time
In today's Big Picture report we discuss this week's retracement in Gold prices, Friday's US jobs report and our outlook for Fed policy going forward.
Happy Saturday all, I hope you consider upgrading your subscription as you read today’s report. Apologies to those who have tried recently. The technical bug has now been fixed - Mohammad Ali
The Week That Was
Gold prices retraced significantly down to the key technical level of 2,290 as reports indicated a temporary cessation of Gold buying by the PBOC and a key jobs report released out of the US on Friday showed stronger job creation in May as compared to the April number. Gains in the US non-farm payroll number for May were broad based and it was encouraging to see a resumption in government sector activity after a brief hiatus. Hourly wage gains came in strong as well with the ave. hourly wage now at $34.91/hour as compared to $34.77/hour in April, a net increase of +0.4% on the month. The unemployment rate ticked up as well to 4% which is a new high for this cycle and we think will be noted by the Fed.
Central Banks
The average Cash earnings number in Japan edged back up to 2.1% this week while both the ECB and the Bank of Canada cut their respective overnight target rates by twenty five basis points. Bond Volatility remains elevated as global markets try to balance the impact of G7 rate cuts against ongoing confusion with regards to the true nature of the US economy.
The picture to us here at Purity Macro is a little bit clearer than the prevailing macro context out there. The Fed had been looking to normalize monetary policy since Q4 of last year despite what was at the time a clearly strong US economy. Their rhetoric to some extent had to be softened in response to an inflation spike in the first half of this year but the intensity in underlying inflation now seems to be cooling. The US jobs market, while still healthy, is still not producing enough jobs to stop the U.e rate from going up and despite sporadic strong reports, the trend in underlying GDP has slowed markedly since Q1 of this year.
In spite of this weeks strong US jobs report which pushed yields up across the curve, our bias remains for lower rates as markets recalibrate their outlook for the Fed’s stance.
The Week Ahead
Eighty Billion worth of treasury bonds are set to be issued this week in the 3y and 30y sector alongside May’s US inflation report which will be released on Wednesday. Europe sees Industrial Production data on Thursday while both China and Germany also release their individual CPI reports for the month of May. The market will be also closely watching policy tweaks by the BOJ. There are no changes expected to the overnight rate but the pace of bond purchases may be tapered in light of a recent speech made by Governor Ueda where this particular matter was addressed. As always, we shall keep you posted.
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Disclaimer
The information provided in this post is for general use only and does not constitute a solicitation for investment. It should not be construed as professional financial advice. Seek independent professional consultation before making an investment decision.