The anticipation of data from the US labor market has not been accompanied by emotions comparable to those prevailing today for a long time. All because the state of employment in the US may determine the timing of the first interest rate hike.
In its latest macroeconomic projections, the Fed indicated that the first-rate hike may not occur until 2023. However, more and more information and expectations for a hike as early as the end of 2022 are appearing on the market. This position was also recently expressed by the International Monetary Fund. Hence, today's NFP data may bring a bit more volatility to the markets if they differ significantly from the consensus of 700 thousand new jobs.
Stock market sentiment ahead of the data release, at 2:30 p.m., appears to be excellent. During Thursday's session, the S&P 500 rose 0.5 percent, the Dow Jones Industrial Average rose 131 points to close at 34,633.53, and the Nasdaq Composite rose 0.1 percent. As a result, the S&P 500 hit an all-time high again, and for the sixth session in a row.
Ahead of U.S. employment data, we learned that the weekly number of new claims for unemployment benefits fell to a 15-month low of 364,000, which was below forecasts of 390,000. The number of layoffs was the lowest in 21 years, and the ISM PMI for U.S. manufacturing also pointed to strong growth in factories.
Dollar still on an upward wave
The dollar index surpassed 92.5 points yesterday and was at its highest level since April 5. Investors appear to be shifting their expectations that the Fed may raise interest rates sooner than 2023. The U.S. dollar's upward trend has accelerated since Federal Reserve officials signaled at their last meeting, which ended June 16, that they expect two rate hikes by the end of 2023.
This week, the Fed's Christopher Waller said the central bank may have to scale back its asset purchase program as early as this year to allow for a rate hike late next year.
Increase oil production, but by how much?
Financial markets are also closely monitoring the situation on the oil market. Here, the OPEC+ meeting gained key importance.
The expectations were that the agreement reached would increase supply by 550 thousand barrels per day. However, Russia and Saudi Arabia with the support of the Ministerial Monitoring Committee recommended increasing production by 400 thousand barrels. This in turn was challenged by the United Arab Emirates. As a result, the meeting was extended pending an agreement.
This did not hurt crude prices, which rose to their highest levels in 3 years. Inventories also declined. EIA as well as API data showed that due to growing summer demand, US oil reserves fell much more than expected last week.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
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