Weak NFP, Fed Starting to Falter, Gold Ready to Fly?!
The US Non-Farm Payrolls data released last night signaled that the labor market is starting to lose steam. The US economy added only 57,000 jobs in June, far below market expectations of around 110,000. This figure has investors beginning to believe that pressure on the Federal Reserve to raise interest rates in the near future is easing.
However, this data is not yet strong enough to immediately open the door to an interest rate cut. This is because US inflation remains high and has not yet returned to the Fed's 2% target. The annual CPI remains above 4%, while PCE inflation, the Fed's main benchmark, also remains high. Therefore, even if the labor force weakens, the Fed is unlikely to dare to cut interest rates immediately.
From a dovish perspective, a weak NFP could be a reason for the Fed to hold interest rates. If the labor market continues to slow, public consumption could weaken, and inflationary pressures could potentially subside. In this view, the Fed likely does not need to raise interest rates again, but can simply wait for the impact of its previous tighter policies to work their way into the economy.
However, from a hawkish perspective, the Fed must remain cautious as inflation remains stubborn. Some analysts believe the market should not be too quick to interpret weak NFP data as a signal for an interest rate cut. As long as core inflation remains high, energy prices have not fully stabilized, and wages are still growing, the Fed will likely prefer to hold interest rates high for longer rather than cut them immediately.
Under these conditions, the most plausible scenario is for the Fed to hold rates at its next meeting. The likelihood of a rate hike has indeed decreased after the weak NFP data, but the likelihood of a rate cut is also not yet high. This means the market is shifting from a "rate hike" expectation to a "wait and see" scenario, rather than immediately entering a "rate cut" scenario.
The impact on gold is likely to be positive as long as the US dollar and bond yields weaken. If gold is able to hold above the US$4,100 area, the opportunity for an increase remains open to US$4,130–US$4,150, and could even test US$4,180 if buying momentum is strong. However, if gold fails to hold above US$4,100, the price risks a correction to US$4,080 and then US$4,050. For today, the bias for gold remains positive, but it remains vulnerable to profit-taking following the sharp post-NFP rally. (asd)*
Source: Newsmaker.id
