Yesterday's ADP private-sector employment report in the US indicated that the situation is far from normalized and came as a negative surprise. This translated into increased tension ahead of Friday's reading of government data on employment in non-farm sectors.
According to ADP, 374,000 new jobs were added in the US in August. This is only about half of what the market seemed to expect based on earlier surveys of economists. The report said that data representing all workers on a company's payrolls shows a deterioration in the labor market. We are seeing a decline in the number of new hires after a significant increase in employment in the first half of the year. Despite the slowdown, the number of new jobs is approaching 4 million this year, but is still 7 million jobs short of pre-poll levels. Growth continues to be led by the service sector.
Dollar loses, gold and silver gains
The dollar seems to be losing value in reaction to the US labor market news. Investors began to consider the possibility of postponing tapering to 2022 and interest rate hikes to mid-2023.
Precious metals priced in USD, on the other hand, seemed to gain. Gold is trading close to the USD 1820 area, while silver is trading at USD 25 per ounce. In an environment of high inflation and slowing job growth, precious metals may be the markets to which capital could flow if such a divergence in macroeconomic data continues.
Will Friday tell the truth?
The ADP report also puts a big question mark over the consensus of the official NFP report that will be released on Friday. The market seems to be expecting a reading above 700k new jobs. However, if it is less than that, the more expectations for tapering and rate hikes may be pushed back, which could continue to put pressure on the USD and cause a continuation of loose monetary policy in the US.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
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