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US jobs data confirms bets of two Fed rate cuts
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Dollar slides ahead of Powell testimony, US CPI numbers
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Euro gaps down as French election results in hung parliament
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Wall Street at fresh records, gold jumps, oil pulls back
US Labor Market Shows Signs of Weakness
The US dollar fell against all but one of its major counterparts on Friday, with the only exception being the Canadian dollar.
Although Friday’s jobs data revealed that the economy added more jobs than expected in June, about three-quarters of that was government and healthcare services, with private payrolls coming in below estimates and corroborating the miss in Wednesday’s ADP report.
What’s more, the unemployment rate rose to a 2-1/2-year high of 4.1%, which combined with the slowdown in wage growth, added credence to investors’ belief that the Fed will proceed with two quarter-point rate cuts this year.
This week, attention will be on Fed Chair Powell’s testimony before Congress on Tuesday and Wednesday. Although he is unlikely to deviate much from what he said in Portugal last week, the Q&A session may include more targeted questions that can provide more clarity regarding the Fed’s plans.
That said, what could prove a bigger determinant on whether market participants will maintain bets of two rate cuts this year may be the US CPI data on Thursday. A further slowdown in inflation may seal the deal in the eyes of investors and perhaps encourage some more dollar selling.
French Election Ends in Deadlock
The euro opened the week with a negative gap after France’s legislative election pointed to a hung parliament. In a surprise showing, the leftist New Popular Front (NFP) alliance took first place, with Macron’s Ensemble coming in second, and Le Pen’s National Rally (RN) finishing last.
That said, the common currency traded higher soon after the opening, perhaps due to the greenback’s weakness and/or as market participants began digesting the idea that Le Pen’s far-right RN would not govern the nation.
Now, investors will have to be patient and wait to see whether there will be any talks between the NFP and Macron’s Ensemble to form a government. However, there are major differences between the two alliances, which have no tradition of working together.
The leftists have already said they want to govern, and if this is through a minority government, France’s role in the European Union is likely to weaken, while it will be hard for them to push through legislation domestically.
Fresh Records on Wall Street, Oil Retreats on Ceasefire Hopes
All three of Wall Street’s main indices traded in the green on Friday, with both the S&P 500 and the Nasdaq hitting fresh record highs after the US employment report solidified expectations of two rate cuts by the Fed this year.
Gold also gained on Friday, briefly exceeding the high of June 6 at $2,388. However, the precious metal is pulling back today. Should Fed Chair Powell and the US CPI data this week add to the rate-cut narrative, the bulls are likely to recharge and perhaps start marching north again towards the record high of around $2,450.
Oil did not take advantage of the weaker dollar, coming under some selling pressure on rising expectations of a ceasefire in the Middle East. A first round of talks has already been held, and negotiations are expected to resume this week.