10th August - Gold Keeps Pushing On Weak NFP
The most important news from Friday was the NFP report, which reported a loss of 23k jobs against an expected gain of 85k for the month. On top of this, the last two months were also revised downwards, making the data release even weaker. We then also had the unemployment rate data release, which was 4.1% against an expected 4.2%, but the drop-off was due to people leaving the workforce rather than more people being employed, and so this was not the positive number it would have appeared to be on the surface.
This was the culmination of a week of poor employment figures from the US that has changed the rate picture completely. September rate hikes now appear off the table, and the discussion has turned to whether rates will be hiked at all, which has caused a run for those assets that benefit from lower rates.
Outside of the US, in the Middle East, Iran and Oman announced they are very close to a deal on the Strait of Hormuz, but this will be to manage the waterway and not a deal to end the war and open the Strait completely. Iran's Foreign Minister Araghchi warned there would be other conditions, such as compensation from the US, for the war to end and for the waterway to be completely reopened. Oil is still currently sitting around the 50% retracement from the recent lows to highs, as it seems markets are waiting for the next development from the region. Brent is sitting just below $87, whilst US Oil is just below $78.
This week we will see the US CPI figures released, the key inflation statistic for the markets. This will be the next key data point in deciding the path for future interest rates and will also cover the period of higher recent oil. The market's reaction to it will be interesting; if oil falls this week, then we could be in a similar situation to last month's CPI release but in reverse. Last month, the CPI figure was not as impactful as it could have been, as it was covering a period where oil was far lower than the oil price on the date of release. We could see a CPI release this week where the period it covers saw far higher oil prices than those on the day of release. Last month was less impactful as it was pricing a world that no longer existed; this month's CPI could well be similar.
Forex
The USD struggled on Friday after the weak NFP print as expected, as rate hike expectations now recede further. The DXY continued to pull back and is now comfortably below 100.000. It will need some form of news event or hawkish data release to change the momentum, as we have had almost exclusively negative data releases for the USD for a while now. I would expect the most likely scenario, unless we see unexpected news, would be for the DXY to continue lower and retest the key 98.000 region. With all of the news surrounding it for the next week or two, the USD could be a very interesting currency to follow.
Outside of the USD, many currencies were relatively flat on Friday and over the weekend. The AUD seemed to have a positive day as risk-on assets gained backing from lower rate hike expectations, but there were no real moves outside of this to note. The markets seem to be focused on indices and precious metals at present, meaning currencies are calm at the moment.
Indices
Last week was the strongest week for the big 3 US indices since the monster rally in April, as markets were encouraged by lower oil prices and lower rate hike risks. The Dow was up 2.5%, the S&P 500 up 3%, and the Nasdaq up 4.1% on the week, with both the Dow and the S&P printing fresh all-time highs.
The indices are enjoying the lower rate hike risks and lower oil prices, but some of the lower rate hike risks have come due to a weakening in the labor market potentially forcing the Fed's hand. The concern here is that the optimism is built on weakness and not strength, which means that there is a far higher risk of the rate-hike-relief story quickly changing to a growth-scare story. On top of this, indices are still generally considered to be overvalued. One indicator, nicknamed the 'Buffett Indicator' after investor Warren Buffett, has us in the same overbought region as previous crashes in the past. This model compares the value of US stocks against the US GDP as a guide and is implying we are still overstretched and due for a correction. It may be that this does not come for a while, but it is something we should be aware of before putting significant capital at risk now that we are at all-time highs.
Precious Metals
After a hesitation on Thursday, metals continued their run on Friday, with Gold gaining 2.5% to sit at $4,350 and Silver 3.45% to sit at $63.55. Both are still above the key levels of $4,200 and $60 that we had discussed for so long, and look to have momentum on their side. We had spent months saying we needed to see a significant change in interest rate expectations to be able to back a move long in metals, and now we have seen that take place.
Unless we see some form of escalation in the Middle East and an increase in oil prices, I think we are likely to see continued support for metals over the coming months, especially as the US labour market looks weak and there are lingering concerns about the US economy's strength. Ideally, we would want to see a pullback to one of the major levels mentioned, before a push further north, which would allow us to get into a trade at the optimal time. This will be something to look out for over the course of the week and could give us an excellent longer-term opportunity, as the fundamentals line up behind metals. This could be the trade to make sure you are in for the second half of 2026.
This Week's Key Market Drivers
AUD Interest Rate Announcement, Tuesday 5:30 am UK time - Rates are expected to be held at 4.35%, so the news to look out for will be the guidance around the decision from the RBA.
US CPI, Wednesday - The key news release for the week, this will be crucial and will affect almost all markets. Lower inflation will back the rate cut narrative slowly building, while hot inflation will put a dent in metals and indices as rate hikes may come back onto the table.
UK GDP figures, Thursday - A key figure for the GBP, this will not affect other markets outside of GBP pairs.
US PPI, Thursday - Less consequential than the CPI print, this will nonetheless be a significant market mover, and a hot or soft print will have similar effects to the CPI print the day before.
Iran - Not a set news release, but updates on the situation will, as always, shape market movements this week.
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