NFP front and centre
US stock futures are little changed following the S&P 500’s fresh record high, while Asian stocks and European bourses are mostly in the green. The dollar index (DXY) isn’t straying far from the 92.0 psychological level, which in turn is keeping gold sandwiched between its 50-day and 100-day simple moving averages for the time being.
The Fed’s policy outlook remains arguably the biggest consideration for markets and this week’s spotlight is very much on Friday’s US nonfarm payrolls data, even as the noise emanating from China’s regulatory uncertainties and the Delta variant’s spread continue to weigh on market participants.
“Substantial further progress” in the jobs report?
Markets are forecasting a non-farm payrolls print this Friday of 875k and if confirmed, would mark the highest NFP number so far this year. Still, it remains to be seen whether such a headline figure would quantitatively meet the threshold of “substantial further progress” which the Fed demands before it starts to take its foot off the stimulus pedal.
Dovish Fed officials have preached their message of patience time and time again saying that policymakers remain a long way off tapering, even though discussions about it have begun in earnest. The FOMC doves want to see a significant narrowing of the 6.8 million shortfall in jobs compared to pre-pandemic levels, while believing that inflation surges are likely to be transitory.
Nevertheless, a better-than-expected US jobs report this week must surely nudge the Fed closer towards much-hyped tapering, which would then pave the way for an eventual US rate hike. A positive surprise in the NFP print this week could reinvigorate dollar bulls while weighing on the rest of the FX complex.
BOE shocker on the cards?
The Bank of England is widely expected to leave its policy settings unchanged on Thursday, cognizant of the lingering uncertainties over the labour market and the downside risks that the Delta variant poses to the UK economic recovery. However, policymakers could still surprise markets on Thursday if they decide to lower the threshold for winding down its QE measures.
As things stand, the BOE’s guidance is for the bank rate to reach 1.5% before it starts to pare back its 895 billion pound bond buying programme. If that target sees a downward revision this week, that could send GBP back above the 1.40 mark while solidifying sterling’s status as the best-performing G10 currency so far this year.
Delta concerns drag on oil
Crude oil has kicked off August on a losing note, with Brent futures down by almost 4% while WTI futures have shed about 4.7% so far this week. Prices above $70/bbl remain precarious due to the Delta variant forcing virus-curbing measures upon China once more. Considering the constraints being reimposed on economic activity in the world’s largest crude importer, that in turn is weighing on the global demand outlook.
Escalating concerns over the Delta variant’s spread are more keenly felt in oil prices compared to other asset classes, given that the optimism surrounding the global demand recovery had underpinned oil’s surge over the past 15 months. As long as that optimism continues to be undermined, oil prices will remain on a softer footing with a near-term propensity for unwinding more of its recent gains.