It seems that investors were powerfully disappointed by today's data from the US labor market, which hit mainly the US dollar, which began to lose value sharply.
As reported by the U.S. Department of Labor, the U.S. economy added 266,000 new jobs in April 2021, following a downward revision of the March data and well below market expectations of 978,000. Thus, it has been a long time since we saw such an optimistic market consensus in the face of such a low reading of the actual data. Hence, such a strong hit to the financial market. Turning to the employment data, significant job gains occurred in leisure and hospitality (331k), other services (44k) and local government education (31k). The increase was partially offset by declines in temporary services (111 thousand) and courier and messenger employment (down 77 thousand). A decrease in employment was also noted in manufacturing (by 18 thousand) and retail trade (by 15 thousand), with no change in construction. Nonfarm employment in April fell by 8.2 million, or 5.4 percent, from its pre-pandemic level in February 2020. Shortages of skilled workers and the supply of parts and materials also could hurt factory employment in the short term. Some analysts even believe that higher unemployment benefits are keeping people at home and they are not taking jobs.
As a result of the huge divergence from the market consensus, the US Dollar has cheapened significantly. The main currency pair EUR/USD rose from 1.2060 to 1.2140, the highest level since the end of April. USD/CHF fell to 0.9020, the lowest level since the second half of February, while USD/JPY plunged to 108.40, the lowest level since the last week of April. The lack of a decisive improvement in the labor market may translate into hopes that interest rates will remain at record lows in the US for a long time to come, and that the discussion of scaling back the asset purchase program will not start in the near future.
Consequently, this may have also helped the gold market, with the price rising to $1,840 per ounce today. Gold seems to be benefiting from the weakness of the dollar on the one hand, and on the other hand from the drop in the yield on 10-year US bonds, which dived from 1.57 to 1.52 percent after the data was released. Perhaps gold is starting to regain its luster, and the negative sentiment towards this market may have ended.
Later today, U.S. President Joe Biden is scheduled to speak on the published data, and the reading may help push through another $1.8 trillion stimulus package as much as possible.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
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