Markets Expect a Decline in NFP, Gold Support

After surprisingly strong job numbers in July, economists expect a return to the prior trend, which could rekindle hopes of a Fed rate cut in the coming months, despite the global situation.

The Market Moving Points

• Economists expect the February NFP at 60K, leaving January's strong number as an outlier and likely to be revised lower.
• Markets have kept odds of a Fed rate cut by June-July around the same level despite the war in Iran.
• Gold stumbled mid-week on a stronger dollar and demand for liquidity amid a general market sell-off over worries of higher energy prices.

Fed Rate Cuts Unchanged Despite War

The NFP report for January surprised markets after coming in above expectations and seeing a downward tick in the unemployment rate. However, analysts immediately began to speculate that the report might be subject to revision or an outlier. NFP data has a long-standing tradition of substantial revisions in the months ahead, and markets seem to be hedging their bets that the January data will be revised. However, if February figures once again exceed forecasts, traders may need to consider the possibility of a recovering jobs market, which could diminish hopes for a near-term Fed rate cut. After January's figures, even arch-dove and Trump appointee Stephen Miran acknowledged that persistently high inflation could mean rates won't come down as much.

Speaking of inflation, investors are wary of the impact of higher energy prices stemming from the war in Iran. US consumer prices are already rising above the Fed's target, but rates were cut to meet the second mandate of maintaining full employment. That might explain why the odds of monetary policy changes have remained relatively steady despite the closing of the Strait of Hormuz. Markets expect two rate cuts by year's end, with the first between June and July. Traders seem to think that the Fed cares more about the job market when setting policy. The Fed will hold off on tightening unless there is continued weakness in hiring, even though inflation is above target.

NFP In Line After January Outlier

The US February NFP is expected to be more than half, at 60K, from 130K in January, while the unemployment rate and average hourly earnings are expected to remain unchanged at 4.3% and 3.7%. This would be in line with a slowing economy at the start of the year that would allow the Fed to cut rates by June, but markets are also in a bit of a holding pattern ahead of May. That's when Trump's presumed successor to Powell, Kevin Warsh, takes the helm and could provide a more dovish direction. In the meantime, gold prices have been buoyant on safe-haven flows amid the Iran war but stumbled midweek amid a massive sell-off in Asia that increased demand for liquidity. Stronger-than-expected jobs numbers could dampen enthusiasm for gold, but a weak showing could get the market to price in an earlier rate cut and give the yellow metal a bit of a boost.

Gold Sustains $5k Support For Now

Gold has found support at the $5k handle, which aligns with the media VWAP, after peaking at the upper VWAP band near $5400. However, the flattening of the VWAP lines suggests a potential consolidation, bridging the 5k back into focus following the recent bump higher. If the round support is breached by bears, it would likely invalidate a potential pennant pattern formation and pave the way for the lower VWAP at $4840. But if the middle line or bottom support holds firm, the pattern could be confirmed, with prices breaking past the record high of $5600.