NFP shocker: Big payrolls miss, stocks pare losses, USD lower, gold higher, oil stronger

It seems the US economy isn’t just yet getting closer to reaching substantial progress with the labor market recovery.  The US economy added only 235,000 jobs in August and the unemployment rate declined to 5.2%.  The prior month was revised higher from 943,000 to 1.053 million, which kind of takes away some of the ugliness from the headline miss.  Job growth is moderating, but the economy is still headed in the right direction.  Today’s jobs miss is mostly about the delta variant and this short-term slowdown in the economy is still widely expected to be temporary. 

Fed officials were eagerly awaiting this report and now the hawks will need to wait to see more data.  Average hourly earnings rose more than expected, but that may be more attributed to more business professionals getting hired this month versus lower paying food services and drinking places jobs. 

The labor participation rate remained unchanged at 61.7% and that will disappoint Fed hawks that were looking to claim further that the labor market recovery is now delivering further substantial progress.  

Job growth is moderating, but Wall Street still believes this is a strong labor market. The delta variant impact on hiring and the services sector will be transitory, which means a couple more months of noisy economic readings.  The S&P 500 index didn’t know what to do with this lackluster NFP report.  US stocks struggled to hold onto earlier gains on concerns the labor market recovery will struggle as economic growth dramatically slows down this quarter, inflation stays high, and a bumpy approval for the Democrats $3.5 trillion spending plan. 

Stocks eventually drifted lower on concerns the impact of delta variant could weigh on the consumer, Chinese stocks continue to battle a plethora of regulatory hurdles, and inflationary fears are intensifying.  

FX/Treasury yields

Treasury yields went on a rollercoaster ride after a disappointing labor market report.  Initially, Treasury tumbled along with the dollar given the slowdown in hiring that cemented the view that the Fed is not any closer to making a tapering announcement.  After processing the entire wrath of economic data, the Treasury yield curve steepened after a massive move higher in average hourly earnings, raising the risk that inflationary pressures are growing.  The 10-year Treasury rose 3.9 basis points to 1.322%.  

Oil

Crude prices are struggling to close out the week on a high note over fears of a US hiring slowdown could be a short-term drag for the demand outlook.  Normally, a weaker-than-expected employment report sends the dollar lower and supports commodity prices, but today’s release did not do that.  Oil prices have been mostly supported over news that the Gulf of Mexico production is still mostly down. 

Exxon had to resort to the US Strategic Petroleum Reserve to bring back gasoline production, which shows the energy market will do whatever it takes to keep production going and that put a cap on the recent rally in oil prices.   

WTI crude is consolidating below the $70 level and that will likely remain until energy traders have a better handle on how quickly production and refining activity will resume post Ida.  

Gold

This is the moment for gold bulls.  A softer-than-expected employment report and wage inflation might be what is needed to help gold prices breakout higher.  Today is a rare day that saw Treasury yields and gold prices rally together.  Gold’s rally that stemmed from Fed Chair Powell’s dovish tapering speech last week did not see much follow through, but that could change now. 

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.  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. 

Bitcoin

Bitcoin’s $51,000 barrier was tested after the nonfarm payroll report complicated the Fed’s path towards tapering asset purchases.  Bitcoin bulls are anxiously awaiting the next wave higher as momentum seems to be just around the corner. 

More executives are embracing cryptos and the next major leg higher seems to be nearing.  A couple weeks ago, the Deloitte Blockchain survey clearly shows interest is not easing as 76% of executives across industries anticipate digital assets will replace fiat currencies in the next 5-10 years. 

The next spotlight in the cryptoverse will be how successful adoption goes for El Salvador when Bitcoin becomes legal tender next week.  Bitcoin may see weekend volatility support another spike higher, but whether or not it holds for when Asia opens next week is the big question.  The $52,000 to $52,500 region could prove short-term resistance, with the $55,000 level likely being the key resistance level for next week.