NFP Recap: Low wage growth offsets stellar jobs beat
James Chen, CMT February 3, 2017 11:01 AM
The US dollar’s response to this very substantial jobs beat, however, was much less than positive. In the immediate aftermath of the jobs release, the dollar dropped sharply, while gold and equity markets climbed further, as the market-viewed probability of a rate hike by the US Federal Reserve in mid-March was essentially cut in half to below 9%. This significantly more dovish rate outlook was reinforced on Friday by Chicago Fed President Charles Evans, who stated that "appropriate policy calls for a slow pace of normalization."
What aspect of Friday’s jobs report contributed to these lowered Fed expectations amid persistent market optimism for economic growth under the new Trump Administration? The unemployment rate inched up from the prior month to 4.8% against expectations of 4.7%, but this was not the critical factor. It was largely the consideration of low wage growth that put a significant damper on the outlook for near-future Fed rate hikes. A key indicator of labor and consumer inflation, average hourly earnings in January rose by only 0.1% (3 cents) against expectations of a 0.3% increase. Furthermore, December’s previously better-than-expected 0.4% increase has now been revised down to 0.2%. This lower-than-expected inflation indication is likely, in turn, to help mitigate the Fed’s previously hawkish stance.
What could this mean for the fate of the US dollar, gold, and equity markets going forward? As the Trump Administration continues to extend its pro-growth, pro-business agenda, while the Fed remains hesitant in normalizing its still-accommodative monetary policy, equity markets should continue to benefit from the Trump-driven rally in the short-term. At the same time, the US dollar is likely to be pressured further, as it has been since the beginning of the year, as the promise of accelerated Fed tightening fades for the time being. Meanwhile, gold prices are apt to remain supported in the face of a weaker dollar and potentially slower interest rate increases on the immediate horizon.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.