In the early morning of Monday (September 9th) in the Asian market, spot gold fluctuated narrowly and is currently trading around $2,496.47 per ounce. The price of gold rose and then fell last Friday because the non-farm payroll increased less than expected. The price of gold briefly reached a nearly three-week high of around $2,529.06 per ounce, approaching the historical high, but quickly gave back its gains due to the decrease in unemployment rate and the lack of a signal from the "3rd person" of the Fed for a 50 basis point rate cut, causing doubts in the market about the extent of the Fed's interest rate cut later this month.
According to the report from the U.S. Department of Labor, there were 0.142 million non-farm jobs added in August, lower than the economists' expectation of 0.16 million. The increase in July was revised down to 0.089 million. However, the unemployment rate remained at 4.2%, as expected, lower than 4.3% a month ago.
Aakash Doshi, Citigroup's North American head of commodity research, said that paper gold traders are debating whether the Fed will cut interest rates by 50 basis points or 25 basis points on September 18th, and the price of gold is reacting to this.
"The labor market is cooling down at an orderly pace," said Jeffrey Roach, Chief Economist at LPL Financial. "Companies are still adding employees, but not as blindly as before. The Fed may cut interest rates by 25 basis points and keep room for more aggressive action at the last two meetings of the year."
The lower-than-expected job growth in August may reflect a seasonal anomaly, where job growth in August initially tends to be lower than consensus expectations and then gets revised upwards. In the past 13 years, the initial job growth figure for August has been revised upwards 10 times. Goldman Sachs economists pointed out that in industries where the initial figures tend to skew negative, the job growth in August is 0.042 million jobs lower than the six-month average level, suggesting that the data released on September 6th may underestimate the actual job growth in that month.
The proportion of industries reporting job growth increased from 47.8% in July to 53.2%. After a 0.2% month-on-month increase in July, average hourly earnings rose 0.4% in August. Wages increased by 3.8% year-on-year, with a growth rate of 3.6% in July.
The industries reporting job growth accounted for 53.2% in August, up from 47.8% in July. After a 0.2% month-on-month increase in July, average hourly earnings increased by 0.4% in August. Wage growth increased by 3.8% year-on-year, with a growth rate of 3.6% in July.
According to the CME FedWatch Tool, traders currently believe that there is a 71% chance of a 25 basis point interest rate cut this month, and a 29% chance of a 50 basis point cut. Prior to the non-farm payroll data, the market was predicting a 47% probability of a 50 basis point rate cut by the Fed in September. After the non-farm payroll data, the market briefly raised the probability of a 50 basis point rate cut to above 50%, but quickly fell back.
"The more balanced economy has opened the door to rate cuts, but the path of all rate cuts will be determined by economic performance," said William, the president of the Federal Reserve Bank of New York and the "third person" of the Fed.
"The economy is currently in a balanced state, and the inflation rate is also moving towards 2%, so it is appropriate to reduce the degree of policy stance by lowering the target range for the federal funds rate," Williams said at a meeting of the Council on Foreign Relations in New York. "Over time, monetary policy stance can transition to a more neutral stance depending on changes in data, outlook, and risks to achieving our goals."
However, Williams declined to comment on the specific details of the upcoming pace and magnitude of the easing policy, as well as the magnitude of the first rate cut later this month, telling reporters, "I personally have no opinion on this at the moment."
Williams broadly stated, "It is clear that we need to normalize rates over time. The problem with that statement is that I'm not sure what a more normal level is, and I'm not sure how long it will take."
The US dollar rose in volatile trading on Friday, briefly hitting a more than one-week low of 100.55 before rebounding, with the highest touch of 101.40, closing at 101.18, up about 0.13%. Prior data showed that US employment growth in August was lower than expected, but indicated that the labor market was only modestly slowing, which could support the Federal Reserve's gradual rate cuts.
"I think the market is really conflicted about this report because it could be used as a rationale for a 25-basis-point cut as well as a rationale for a 50-basis-point cut." said Gennadiy Goldberg, director of US rate strategy at TD Securities.
"The US economy seems more likely to derail in the coming months, which suggests that Fed officials have good reason to take a more aggressive stance." said Karl Schamotta, Chief Market Strategist at Corpay, a Toronto-based payment company.
He said, "There is still little possibility of a 50 basis point rate cut at the Fed's September meeting, but the data released on September 6th provided clear evidence of a sharp deterioration in the labor market fundamentals and will enhance bets on at least one massive rate cut in the coming months."
Federal Reserve Governor Waller said last Friday that the "time has come" to start a series of rate cuts, but she is open to the magnitude and pace of the cuts.
"If the data supports rate cuts in consecutive meetings, then I believe it would be appropriate to cut rates in consecutive meetings," Waller said in a speech prepared for the University of Notre Dame. "If the data suggests the need for larger rate cuts, then I would also support them. When inflation accelerated in 2022, I strongly advocated for front-end tightening, and if appropriate, I would also advocate for front-end easing."
Waller's tone is stronger, suggesting he is willing to cut rates by 50 basis points at the start. He said the data showed economic softening rather than deteriorating and that there was no sign of a recession, but "with the shift in Fed policy focus from inflation priority to maintaining full employment, the current series of data indicates that patience is no longer needed, but action is needed."
Waller said that although the rate cuts to be initiated at the next meeting by the Federal Reserve will be conducted cautiously in the context of continued economic and employment growth, "I am ready to take action to support the economy as inflation stabilizes."
Affected by the decline in new job additions and Waller's speech, the yield on 10-year US Treasury notes fell last Friday, touching a 15-month low in earlier volatile trading, which still provides some support for the price of gold.
The yield on 10-year US Treasury notes fell 2.5 basis points to 3.708% at the end of last Friday's trading, hitting its lowest level since June 2023 of 3.648% during the session.
The yield on 2-year US Treasury notes fell 10.6 basis points to 3.646% last Friday, reaching its lowest level since March 2023 of 3.595% during the session.
"The employment report suggests that the Fed has no reason to rush," said Drew Matus, Chief Market Strategist at MetLife Investment Management. "The labor market is slowing down, but at a slow pace, allowing the Fed to take a more cautious approach in September."
However, some details of the report on Friday, including a downward revision of the employment growth for the past two months by 0.086 million, may be a warning sign that the labor market is not as healthy as people hope.
Goldberg of Deutsche Bank said, "We do believe that the labor market is not only not balancing, but is actually starting to cool significantly, which may make the Fed quite nervous."
This week will also see the release of U.S. CPI data for August, and investors need to pay close attention to the performance of the data and changes in market expectations.
In July, the overall CPI in the U.S. fell to 2.9% year-on-year, and it is expected to fall again to 2.6% in August. However, the core inflation rate is expected to remain unchanged at 3.2%, the lowest level since May 2021. If these data are confirmed, the Fed is more likely to take a "dovish rate cut" of 25 basis points. However, for a realistic possibility of a 50 basis point rate cut, there must be a major downside surprise.
This week will also see the European Central Bank's interest rate decision, which investors also need to pay attention to. The vast majority of economists expect the ECB to cut rates by 25 basis points at its meeting on September 12th and cut rates again in December. This could provide some support for the price of gold, as rate cuts would reduce the opportunity cost of holding gold.
Sources close to the European Central Bank's discussions say that there are divisions among policymakers between inflation pressures and weak economic growth and the potential for a recession.
Luca Mezzomo, Head of Macro Economic Analysis at UniCredit, said: "The recent slowdown in wages and sluggish economic activity has increased the likelihood of a rate cut."
On this trading day, it is necessary to pay attention to China's August CPI data and the one-year inflation expectations of the New York Fed in August.
(Spot gold daily chart, source: E-Huitong)
At 06:55 Beijing time, spot gold is now reported at $2487.43 per ounce.