Nonfarm Jobs Report and Gold

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The Asian equities remained weak while the Chinese non-manufacturing PMI has also declined compared to June and may continue to weaken commodities. However, the main event today is the nonfarm releases from US and with slowing economic activity in the largest economy, more pain might be in store for the markets in today’s volatile session.

A bunch of PMI releases are expected from eurozone and the same are likely to remain mixed, while the weakened euro currency dropped 170 bps after Draghi’s comments. The euro is unlikely to recover from weakness but will continue to weigh in early trading. The eurozone retail sales are also expected to plummet and may support the downside for commodities later today.

Gold prices have taken a breather while the Asian equities have traded down on an indecisive ECB stand-off against heightened market optimism. The euro has not recovered from the upset policy action. But that would not have created much impact on gold as the shared currency rallied on its own domestic reason and the fall as well was due to the same rationale.

Gold although had taken some cues from the strong euro. Gold tumbled more on the shift and follow up to the FOMC statements the prior day.

Moving forward, the prime mover and shaker for the market will be the jobs report. Growth in labor market is under doubt especially after the ADP reported an unexpected rise in additional jobs number. Although the nonfarm has no direct relation with the ADP numbers as the prior includes both government and private jobs.  Compensation cost for civilian and private workers increased 1.7% and 1.8% respectively for 12-months period while 65 metropolitan areas reported jobless rates of at least 10%. Although the ADP report is considered a leading indicator for the nonfarm report, during this time of crisis and high unemployment, the ADP report has misled the markets more than it has indicated.

However, of 94 metropolitans (ADP report) who have added a handful jobs it the numbers are not enough  to reduce domestic unemployment by 100k number certainly seems better than 80K but still it is very low of the target 250K run in a month to keep the unemployment level below target level. Hence, the immediate impact on gold may be harsh based on the number, but fundamentally even this 100k is not enough for a better shaped labor sector. Hence, market behavior could be very volatile.

All this said, if the nonfarm report is disappointing, it will be one more supportive piece of data to help the FOMC offer stimulus next month. If the nonfarm report is in close proximity to the forecast, markets will most likely not react at all. If the report exceeds expectation, it might be a nail in the coffin of hope of stimulus. So we have a two edged sword. When evaluating gold, a negative report could be a positive for gold.

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About: FX Empire Analyst - Barry Norman

Barry produces a private Daily Market Review newsletter that is distributed around the globe to over 25,000 subscribers and recently published a book on Options Trading that is available from amazon.com

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