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Rally Running on Fumes after Fed and NFP Boost

It’s been a relatively subdued start to trading on Monday and the US is eyeing a similar open, with stock markets struggling to maintain the momentum from the second half of last week.

Investors got everything they wanted from the Federal Reserve and the jobs report. Chair Jerome Powell and his colleagues adopted a slightly less hawkish tone for the meeting while maintaining its extremely cautious position on inflation and interest rates.

The jobs report, meanwhile, brought a miss on the NFP number – alongside downward revisions totaling another 101,000 jobs from prior releases – and arguably more important, a miss on the wages component meaning two of the last three reports have produced 0.2% monthly readings. If repeated, this could be a game changer.

The Fed is desperate to take some heat out of the labor market as it believes it’s required to get inflation sustainably back to 2%. But if wage growth continues to fall, 2% inflation may be achievable without too much disruption. I’m not sure that’s the likely outcome at the moment, but it’s certainly a positive development.

That said, the response in the second half of the week didn’t look particularly sustainable. It was arguably over the top under the circumstances but investors have been eagerly awaiting the turning point in the data. Perhaps they’ve been premature on this occasion but data over the coming weeks may prove otherwise.

Oil choppy as Saudi and Russia recommit to end of year cuts

Oil prices remain very choppy and are trading a little over 1% higher on Monday. Russia and Saudi Arabia once again reaffirmed their commitment to output restrictions until the end of the year which isn’t surprising under the circumstances and it’s not new information as it aligns with what they’ve said previously.

Weaker economic expectations have weighed on crude prices recently which has contributed to prices pulling off their highs and, arguably, once again justified the positions of OPEC+ nations in cutting supply. It’s not a question of whether the two countries keep to end-of-year targets, but whether they extend them.

Gold struggling to break $2,000

Gold rallied above $2,000 for the fourth time in six days on Friday and, just as it did on the previous three occasions, failed to capitalize on the breakout before falling back below. That’s not a particularly bullish signal and suggests the rally over the last month is running on fumes. We may still see a break above $2,000 but another bullish catalyst may be required.

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