US labor market is catching a breath. Cool NFP data without a global effect
Yesterday’s U.S. labor market data were weaker than expected.
Employment rose by only 49,000, and the decline in the unemployment rate (4.2%) was a sign of lower workforce activity. These are not absolutely alarming figures.
In the past we had much worse reports that were predicted to signal a recession, only to turn out to be mere statistical noise.
This time there were hopes that the global event would improve the data, but that did not happen. Additionally, the NFP was in a sense confirmed by a weaker ADP report.
Sentiment vs. facts: Powell and oil prices dampen the market’s hawkish enthusiasm
In my view, the data affected sentiment more than a real change in the economy’s perception by the FOMC. Warsh showed a different face at the conference than expected, triggering a significant dollar strengthening.
The market, however, slightly hesitated in pricing (almost two) rate hikes this year. Meanwhile, oil prices have basically returned to pre-conflict levels, which is more significant.
This allows bankers to consider that inflationary risks are likely transitory and that they can afford to wait it out. Take, for example, a recent statement by Fed’s Kashkari, who admitted that he changed his expectations from one cut to one hike due to the Middle East.
However, if oil prices do not rise again, those expectations will fall again. It is worth noting Warsh’s statement this week, who has already mentioned that inflation expectations are decreasing.
EURPLN in a narrow range 4.22-4.30
This will therefore be key, and it seems that despite the still tight situation, the Trump administration will want to avoid significant escalation before the elections.
Thus the chance of EURUSD staying in consolidation (from which it attempted a breakout from below) increases, leading to rebounds in precious metal prices (we already see that now), and keeping EURPLN in a fairly narrow 4.22-4.30 fluctuation range.
Friday looks quite calm, as the U.S. has a holiday before tomorrow’s holiday, and Europe’s final services PMI is already behind.
At 10:20, the euro costs 4.29 zloty, the dollar 3.74 zloty, the pound 5 zloty, and the franc 4.67 zloty.
