NFP beats expectations for third straight month, dollar up, stocks down

Updated July 8, 2022


Headlines

*US headline NFP prints at 372k versus 268k, unemployment and wages in line

*Dollar jumps as market odds of 75bp July Fed hike rise to 93%

*Oil heads for a weekly loss as recession fears trump tight supply

*Canada job number declines but unemployment rate drops to 4.9%

USD made new cycle highs at 107.78 before dropping ahead of the NFP data. DXY currently trades around 107.30 while EUR/USD pares losses after posting another fresh low at 1.0071. The GBP bounce is fading though support at 1.1933 has held. CAD is weaker on the session after the headline job number declined by 43.2k. USD/CAD trades around 1.30 while the antipodeans hover above long-term support.

US equity futures are indicating a softer open after the strong US jobs data. Bond yields have pushed higher as investor expectations for more aggressive rate hikes get priced in. That said, US futures losses have been reined in with bulls hoping to finish the week strongly. European markets are mixed with the German Dax outperforming.

Event Takeaway – Red-hot labour market

The US NFP report for June showed employers in the world’s largest economy hired 372k new workers last month. This compared with forecasts of 265k by economists. The unemployment rate stayed at 3.6% while average earnings rose to 5.1% annually.

Futures markets have risen with the odds for a July Fed rate hike now at 93% from 83% before the data. The terminal rate is now being priced at around 3.58% by next February. This is up from around 3.4% before the payrolls numbers. A strong report means the Fed needs to be more hawkish with its front-loading. Further out, a slowdown in the labour market is required to bring inflation down.

Chart of the Day –S&P500 strong week heads into resistance

Stock markets have enjoyed a few green days and pushed above key resistance/support. The US jobs report may slow this ascent as the Fed pushes ahead with more rate hikes.

The S&P500 posted a cycle low in mid-June at 3636. Since then, prices have headed higher with a pullback at the end of last month. The May low is key at 3810 as it also sits near 3815, the 38.2% Fib level of the March 2020 low and all-time high from January. Bulls will want to push above 3945 and then the 50-day SMA at 3978. The upper part of the bear channel comes in around 4,000.

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