The US Bureau of Labor Statistics (BLS) will announce the latest non-farm payroll report on Friday at 20:30 Beijing time. The market generally expects that there will be an increase of 0.19 million new jobs in June, which is lower than the 0.272 million in May; the unemployment rate is expected to remain stable at 4%; and the average hourly wage is expected to increase by 3.9% year-on-year, which is lower than the previous 4.1%.

Most economic indicators in the past month have indicated that the labor market is cooling down: the number of people applying for unemployment benefits has increased compared to the BLS employment report survey window period; the ADP employment index is lower than expected due to a decrease in wage indicators. Analysts point out that forward-looking wage indicators show that future wage growth will further slow down. June challenger layoffs rose year-on-year, while May fell; business survey results are also depressing, with the ISM manufacturing report showing that its employment sub-index fell back into the contraction zone, while the ISM services employment sub-index further fell into the contraction zone.

If these data are confirmed, they will contribute to expectations of recent rate cuts by the Federal Reserve. Currently, it is widely believed that there is a high probability of two interest rate cuts this year (while the Fed's median forecast is only one rate cut in 2024), with the first rate cut fully priced in at the November meeting and the probability of a rate cut in September is about 80% - the June employment report may help raise this probability. If the decline in employment growth is significant, there is reason to believe that the probability of rate cuts in July or September will both increase significantly.

What is Wall Street focusing on?

Overall, the market's forecast for June's 0.19 million job growth is not only lower than May's 0.272 million, but also lower than the three-month average of 0.249 million, the six-month average of 0.255 million, and the 12-month average of 230,000. Wall Street's forecast range from RBC Capital Markets' 0.237 million to Goldman Sachs' 0.14 million.

Goldman Sachs lost its optimism about the labor market this time, expecting employment growth to be very bad. The bank explained, "Big data indicators continue to show that the speed of job creation in the spring recruitment season is below normal levels, and our tracking indicators of layoffs continue to rise slightly from a low level. We also assume that the return effect will cause a drag of 0.05 million to employment growth, because we believe that the longer than usual survey window period in the previous month's report brings forward June's employment growth to May." Goldman Sachs also expects the unemployment rate to remain unchanged at 4%. The data has been below 4% for 27 consecutive months since 1970, but ended this trend after rising to 4% in May.

At present, the US unemployment rate is at a key node. As this indicator gradually rises, people are beginning to discuss the Sumner rule. The three-month moving average of the current unemployment rate is 0.37 percentage points higher than the lowest value of the three-month moving average last year, and investors are paying attention to whether this value will reach 0.5 percentage points. It can be certain that if the unemployment rate is high, the market will react.

At present, the eyes of all are on the US non-farm payroll report, which may have an important impact on the market's pricing of interest rate cuts by the Federal Reserve, thereby affecting the trend of the US dollar and gold.

Nick Bunker, director of economic research at Indeed Hiring Lab, said: "At the time of the release of this report, uncertainty about the economic situation has increased rather than decreased. Specifically, I am more concerned about the unemployment rate, which has been slowly rising." He said that if the unemployment rate slowly rises like it has in recent times, I don’t think this means there is a high risk of triggering the Sumner rule or any recession indicators based on the unemployment rate, but the possibility has increased."

The updated Economic Projections report by the Federal Reserve in June shows that policymakers expect the unemployment rate to be 4% this year and rise to 4.2% next year. Officials generally believe that inflation needs to continue to cool down and the labor market needs to continue to gradually rebalance in order to meet the conditions for interest rate cuts.

Nevertheless, if the labor market unexpectedly weakens, the rate cut plan may accelerate. Powell reiterated this week that any unexpected weakness in the labor market may trigger the Federal Reserve to adopt a looser policy. However, he also said that although the labor market is cooling down, it is still strong. He also said that slight fluctuations in the unemployment rate, that is, a few percentage points, do not constitute unexpected weakness. Recently, Fed director Cook pointed out that 0.2 million new jobs need to be added every month to maintain a stable unemployment rate.

As the labor market becomes more coordinated, wage growth will be a greater driving force behind the Fed's expected interest rate cuts, and both quarter-on-quarter and year-on-year growth rates are expected to slow down.

Analysts at Oxford Economics Institute believe that as long as the data does not show a significant deterioration in the labor market, overall, the slowing down of inflation plus good employment conditions should enable the Fed to wait patiently for interest rate changes, so that they can ensure that inflation reaches the target sustainably.

Gold: up to 2400, down to 2300?

At present, everyone's attention is focused on the US non-farm payroll report, which may have an important impact on the market's pricing of interest rate cuts by the Federal Reserve, thereby affecting the trend of the US dollar and gold.

If these key data points are below market expectations, this will strengthen expectations of two interest rate cuts by the Federal Reserve this year, and rate cuts in September may become a foregone conclusion. In this case, the US dollar will further adjust and provide new impetus for the rise of gold prices.

From a technical perspective, Fxstreet analysts pointed out that the short-term technical prospects of gold are basically unchanged. Gold closed above the key 50-day moving average on Wednesday, breaking through the consolidation trend this week, and since then, the risk has tilted upwards.

A weak employment report may give gold bulls a breakthrough and push the gold price up to the threshold of $2400, but first they need to break through the high points of $2369 in the previous two weeks and $2389 in June. Currently, the 14-day relative strength index (RSI) of gold is above the 50 level, increasing the credibility of its call potential.

In addition, a strong US non-farm employment report coupled with hot wage inflation could push gold prices down to the immediate support of the 50-day moving average, currently at $2340. Subsequently, if selling pressure intensifies, gold shorts may push towards the 21-day moving average of $2328. If it continues to fall below that level, it may accelerate the fall towards the key level of $2300.

Edited by Jeffrey