When the Non-Farm Payroll numbers came out last Friday (3rd June 2016), it really dealt a big blow to the expectation of interest rate rise everyone was so hyped-up about to happen in mid June.
Here’s what happened:
- the forecast was for 160,000 gain in jobs for May.
- Instead, guess what? the actual number came to 38,000.
- Employment gain for April and March were revised down ending up with around 60,000 less jobs in those months than initially expected.
The CURRENCY MARKET REACTION?
The currency market had a fit when the numbers came out. It was spectacular-the USD fell like a stone, AUD shot up!
Euro Vs US Dollar: Euro shot up!
GOLD CHART REACTION ON THE NON-FARM PAYROLL FIGURES
There were many bets placed against gold thinking that there was going to be a June interest rate rise. When the non-farm payroll came out, the numbers were not pretty.
Guess what happened? These traders and investors immediately bailed out of their trades and Gold shot through the roof.
Here’s the chart of Gold vs USD: Gold shot up!
You Know That US Interest Rate Hike Everyone Was Talking About For In Mid-June?
Everyone was saying “how strong the US Economy was getting” and there was going to be a rate rise?
Well, apparently, that 38,000 Jobs added in May shows how strong the US Economy is!!! That was one pretty good news!!!
That interest rate rise is off the table for this month. It was dealt a mortal blow on Friday with the release of the no-farm payroll employment data for May.
So What Is The Fed Boss Going To Do?
Well, here’s what the Financial Time Reports:
‘Investors will tune in to Ms Yellen’s speech to the World Affairs Council of Philadelphia on Monday as they continue to digest Friday’s disappointing jobs report. “Markets will be waiting with bated breath to see whether she strikes a more hawkish tone or one of continued cautiousness ahead of the June FOMC meeting,” said economists at Bank of America.
‘Following weak job growth numbers, expectations for a rate rise in June slid to just 2 per cent, while odds of a move in July nearly halved to 27.5 per cent from a day earlier, according to Bloomberg calculations of movements in federal funds futures.’
One thing you can bet on is the fact that Ms Yellen’s speech will be “very” interesting.
You see, the Fed is looking looking like a lost kid in the Amazon forest.
Well, for the past few weeks, the Fed has been orchestrating a “tightening” strategy and this has been dealth a big blow.
This also means that the possibility of an interest rate increase in July is also off the table.
The Fed Is Growing Increasingly Impotent
To the markets eyes now, the Fed is growing increasingly impotent.
Let me explain what I mean by that:
- in the past few years, to make money, you have to make bets on Fed announcements. The Fed is so good at telling the markets what they are going to do many months in Advance.
- So by the time, Fed acts, the market has already priced in that move.
- So those responding to the Fed early make money easy.
Now, the Situation Is Changing…
In recent weeks, the Fed was preparing the market for an interest rate rise. So guess what the traders and investors did?
They bought the US Dollar and sold Gold.
This “unspoken” deal between the market and the Fed came to screeching and grinding halt on Friday with the result of the non farm payroll data.
Believe me, there are hedge funds and big traders who lost a lot of money on Friday.
In light of that, it is an obviously dangerous ground for the market which is so used to being nurtured by the Fed.
You Can Argue That This Is A “One Off” Situation
True. This may turn out to be a “one off” kind of situation and June’s data may be even better, who knows?
If that is the case, Yellen will be again talking interest rate rise again in July and this will save Yellen’s face.
Then again, can you really believe all these numbers that are coming out in US?
There are people on the ground in US living it tough daily and they say the situation is not getting better at all…its getting worse.
Then there are those people sitting up in glass towers crunching numbers into their computers and saying that the US economy is getting better?
Who are you going to believe to make money in the market?
Best Answer: believe price action!