By Jigar Trivedi
Comex gold held around $1,910 an ounce on Friday as US jobs data bolstered bets that the Federal Reserve will lift rates further in July. A report from the ADP showed that more than twice the amount of expected job creations were added in the US economy in June, while other reports showed that job cuts fell to their lowest in eight months and continuing jobless claims dropped to a four-month low. The data reinforced expectations of a 25b basis point rate hike from the Fed this month, adding leeway for policymakers to curb inflation without triggering a sharp contraction. Looking ahead, investors await the monthly US payroll report for more clues on the monetary policy outlook. Markets will also monitor updates about China’s export controls on semiconductor inputs and US Treasury Secretary Janet Yellen’s visit to Beijing.
The US Fed is likely to raise rates further this year
The minutes from the latest meeting showed that almost all FOMC participants judged it appropriate to leave the fed funds rate steady in June, as it would allow them more time to assess the economy’s progress toward maximum employment and price stability. Still, some members favored raising rates by 25bps. All officials continued to anticipate that, with inflation still well above the 2% goal and the labor market remaining very tight, maintaining a restrictive stance would be appropriate, and almost all saw the need to raise borrowing costs again this year. The Fed left the target for the funds rate unchanged at 5%-5.25% in June and after the decision, Fed Chair has reinforced several times the need to raise rates further this year.
US 10Y bond yield holds at 4-month high
The yield on the US 10-year Treasury note maintained its position above the 3.9% threshold, hovering close to its highest level since early March after the minutes from the June’s FOMC policy-setting meeting revealed that a majority of policymakers were in agreement that further interest rate hikes would be appropriate during 2023. Officials acknowledged that inflation, despite a recent slowdown, remained significantly above the Federal Reserve’s 2% target, while emphasizing the persistently tight labor market. Nevertheless, concerns regarding an economic slowdown led market expectations to anticipate a 25 bps increase in the central bank’s upcoming meeting, with a subsequent pause, deviating from indications of 50 bps of additional rate hikes suggested in the FOMC’s Summary of Economic Projections.
(Jigar Trivedi, Senior Research Analyst – Currencies & Commodities at Reliance Securities Limited. Views expressed are the author’s own.)