The significant deterioration in the US jobs data in May left Federal Reserve hawks in an offside position. The heavy slump in US nonfarm payrolls (38’000) shut the door for a Fed rate hike in June. The probability of a June rate hike dipped to 4% from 22% prior to the jobs report. Fed’s Brainard said that Friday's data was ‘sobering’, mentioning ‘some evidence that the strong US dollar has depressed earnings’.
The possibility of a July hike could also be put on the shelf as any hawkish action from the Fed before September could generate an excessive panic in the market. The Fed will certainly chose to play it safer and bring the 'data-dependency' rhetoric on the table to justify a delay in the interest rate hike. The chances of a July hike tanked to 27% from 50%.
Amusingly, the weak US labour data brought forward the possibility of a new Quantitative Easing (QE) program, QE4. Such a brutal U-turn in market expectations could squeal the tires.
The cheaper US dollar, lower US yields and the limited risk appetite keep gold bid above the 100-day moving average, $1237.
Miners lead gains in London after copper surged to a 4-week high on a broad-based USD sell-off. The FTSE gained back the 200-hour moving average handle, 6241p, at the open. However, the upside attempts could be expected to remain limited on looming Brexit risks. More resistance is to come into play pre-6270 daily pivot.
Rio Tinto (+4.17%)
BHP Billiton (+3.63%)
The cheaper US dollar also has a positive impact on energy stocks. BP (+1.52%) and Royal Dutch Shell (+1.13%) are well bid as the lower US dollar gives support to the WTI above the $49.
The pound stopped appreciating above the 200-hour moving average against the US dollar, even after the big miss in the US jobs data. Pound traders remain seller-on-rallies on looming Brexit risks. The pound is weaker across the globe and is expected to continue its journey moving south into the June 23rd referendum.