Silver surges as NFP misses forecasts; Stocks still near recent highs

Summary:

• NFP misses expectations but wages beat

• Precious metals recover in response 

• Stocks still supported with US near 1-month highs

• Pound set for weekly gains despite Brexit noise

• Powell speech due before week is out

The US economy added as many as 130k news jobs last month, below the estimated number of 160k. At the same time, we saw stronger wage growth which actually ticked down to 3.2% YoY from upwardly revised 3.3% YoY. The jobless rate stayed at 3.7% and the labour force participation rate picked up to 63.2% from 62%. Overall the data seems to be quite neutral for the greenback, hence a September’s rate cut does not seem to be at stake at all. At the same time we got the jobs data from Canada which beat expectations in terms of employment but wage growth missed expectations by a large margin coming in at 3.8% vs. 4.5% YoY expected. All in all, these two releases have pushed the USDCAD much lower and from a technical point of view the pair seems to have quite a lot of space to continue heading south.

Weaker than expected NFP report could pave the way for another rate cut in the US and that was exactly what precious metals needed to roar higher. Silver prices stormed higher (+4% from the daily low!) after a short (but dynamic) correction, platinum saw major gains too. Investors still await a speech from Fed’s Powell (5:30pm BST/6:30pm CEST) as it may have a major impact on weekly closing prices.  

The price action for US stocks this week has been pleasing for bulls with a soft start after another gap lower over the weekend marking the low for the week and the highest level being printed in the past hour. This sort of move is in keeping with the kind of thing you’d normally see in bull markets with weakness to start out and ending on or near the highs. Should the market manage to finish today around current levels or higher then a large bullish weekly candle will have been printed and the outlook for further gains going forward would become more favourable. The S&P500 is on course for a second solid weekly gain in a row. The market is now up around 170 points from last week’s low and resides less than 2% from the all-time high at 3029.

Brexit has dominated the news flow through the week with headlines coming thick and fast as parliament wasted little time in getting to work following their summer recess and essentially going someway to taking a no-deal outcome off the table once more. Boris Johnson’s plans for a general election in the middle of October have seemingly been thwarted for the time being and hopes for a resolution to the Brexit stalemate anytime soon are once more starting to look little more than wishful thinking. Prolonged periods of uncertainty is typically associated with weakness in a currency, but the pound has responded positively to the latest developments as the fading prospects of a no-deal have attracted buyers back into the market. 

The question for investors now is whether bad news is actually good for stocks as it could well weigh on the decision makers at the Fed and lead to a more accommodative monetary policy going forward. There’s not been a clear market reaction in the S&P500, but the failure to sell-off is perhaps telling after what is, all things considered, a soft data point. Further insight into how the Fed see the future policy path may be revealed later when chairman Powell delivers a speech in Zurich. Before today’s data the market was already assigning a high probability to 3 further 25 basis point cuts this year, but the chances of a 50 bps move, while still unlikely will probably tick higher after this release.