By Barani Krishnan
Investing.com — The U.S. August jobs report was disappointing, few will disagree. But was it also seasonably good, “under the circumstances”?
This is what investors in gold, oil and other commodities have to figure out in the coming week as the answer could shape the next move for the Federal Reserve, the dollar and global markets.
Prior to the release of the August job numbers, there had been rife speculation that the Fed, which has been buying $120 billion in bonds and other assets since the Covid outbreak of March 2020, will taper some of its lifeline to the economy. The central bank has also been keeping interest rates at virtually zero levels for the past 18 months.
The Fed’s Federal Open Market Committee, or FOMC, meets September 21-22 to decide on rates and other policy matters.
“This dooms the chance of a September taper announcement and may even take (the) chance of a taper hint off the table,” economist Adam Button said in a post on ForexLive, right after Friday’s release of the non-farm payrolls report for August.
Going forth, Button also noted that the Fed will only get one other NFP report before the November FOMC meeting. “So this considerably dims the chance of a November taper announcement.”
But as markets settled on Friday and the long weekend towards Monday’s Labor Day holiday began, a different narrative began to set in.
A jobs growth of 235,000 – or almost 70% below the targeted 733,000 – is a huge miss, granted. Despite that, the unemployment rate fell by 0.2 percentage points to 5.2%. That’s a big thing for the Fed, which has been waiting for almost two years now to bring the jobless rate back to 4% or under – its target for full employment.
The Labor Department also revised the prior month’s employment growth to 1.053 million from a previously reported 943,000. That took some 110,000 jobs off the August sting. That might not sound like a great deal, but for number crunchers looking for clues on Fed ideas for a stimulus taper after this, every adjustment matters – particularly one that hawks at the central bank could use to bolster their case for less spending to prop up the economy. Another positive factor was the rise in average hourly earnings, although that could be a result of more business professionals getting hired versus people in lower paying food services and drinking places jobs.
What remains a bummer for Fed hawks though is the labor participation rate remaining unchanged at 61.7%. This means that those looking to further their claim that the labor market recovery is now delivering further substantial progress will probably have to wait for at least a few more jobs reports.
Oil prices fell on Friday while gold, unsurprisingly, jumped to a 2-month high, booking a fourth straight week of gains as a flood of money rushed into the yellow metal on bets that the Fed won’t be able to announce a taper anytime soon.
The mood on Wall Street on Friday, though, was broadly undecided. The Dow slipped while the S&P 500 finished a touch lower as some investors appeared to believe the labor market was still strong and the impact of Covid’s Delta on hiring and the services sector will be transitory. The Nasdaq rallied to another record high on bets the Fed will stay dovish, leading to a boom in stay-home stocks – i.e. Big Tech ones like Amazon (NASDAQ:AMZN) to virtual meeting service Zoom and exercise bike Peloton (NASDAQ:PTON).
Gold Market & Price Roundup
Front-month gold on New York’s Comex settled up $22.20, or 1.2%, at $1,833.70 an ounce. It earlier hit a June high of $1,836.80.
For the week, the benchmark gold futures contract rose 0.8%, gaining for a fourth week in a row.
“Gold’s short-term outlook just turned very bullish now that a September taper is completely off the table and November is not a sure thing,” said Ed Moya at OANDA. “The US economy will keep seeing inflationary pressures and that could be the catalyst for gold to get its groove back.”
“If gold breaks above $1850, bullish momentum might not have too much trouble rallying towards the psychological $1900 level. This is the moment for gold bulls.”
Oil/Gas Market & Price Roundup
Oil prices fell about 1% on Friday after an abysmal U.S. jobs report for August, although the bottomside for crude was limited by speculation that the Federal Reserve will hold off from tapering the stimulus it was providing the Covid-restrained economy.
London-traded Brent crude, the global benchmark for oil, meanwhile, settled at $72.61 per barrel, down 42 cents, or 0.6%, on the day. For the week, Brent lost just 0.1%.
New York-traded West Texas Intermediate, the benchmark for U.S. oil, settled the day at $69.29 per barrel, down 70 cents, or 1%. For the week, WTI rose 0.8%.
On the natural gas front, the most active October contract on the Henry Hub settled up for a fourth day in a row, finishing at $4.697 per mmBtu, or million metric British thermal units. For the week, the spot gas contract gained almost 8% after last week’s 13.5%.
Gas prices have been on a tear since the year began, with March being the only exception, from weather extremities and underwhelming production. This week, the rally reached new highs as Hurricane Ida shut down 85% of gas production facilities on the Gulf of Mexico prior to its making its fall. In the aftermath of the storm, some production remains shut and will take time to resume due to carnage and complications caused by the storm.
Gas prices are already up 86% on the year, with analysts estimating they could reach $5 per mmBtu next.
Energy Markets Calendar Ahead
Monday, Sept 6
U.S. Labor Day holiday
Tuesday, Sept 7
Cushing inventory estimates
Wednesday, Sept 8
American Petroleum Institute weekly report on oil stockpiles.
Thursday, Sept 9
EIA weekly report on crude stockpiles
EIA weekly report on gasoline stockpiles
EIA weekly report on distillates inventories
EIA weekly report on natural gas storage
Friday, Sept 10
Baker Hughes weekly survey on U.S. oil rigs
Disclaimer: Barani Krishnan does not hold a position in the commodities and securities he writes about.