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Overview of the Market Minutes:
Crude oil and Brent oil prices soared to new all-time highs after OPEC+ declared a smaller-than-expected increase in supply.
Following the June US ADP employment change and June US ISM manufacturing reports, Friday’s US nonfarm payrolls report is expected to be mixed.
Since the June Fed meeting, the rate markets have been in a holding pattern.
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This year, the Fourth of July comes on a Sunday, therefore government commemorations will take place between Friday, July 2 and Monday, July 5. As a result, US financial markets will operate on a different schedule, resulting in lower trading volumes; especially following Friday’s release of the June US nonfarm payrolls report, market activity may drop sharply. The Euro cup semifinals are on Tuesday and Wednesday, so such conditions could last until next week. To be honest, financial markets may be entering a period of low activity until Monday, July 12, when earnings season kicks up in earnest. GDPNow 2Q’21 Growth Estimate (June 25, 2021) from the Atlanta Fed (Chart 1) “The nowcast of second-quarter real gross private domestic investment growth declined from 13.1 percent to 6.8 percent,” according to the Atlanta Fed, based on data collected so far this week. The Atlanta Fed’s GDPNow 2Q’21 growth prediction will be updated later today, with another following the June US NFP report tomorrow. A Closer Look at the June Nonfarm Payrolls Report in the United States When it comes to the June US NFP data, the major question is whether the US labor market has regained its footing following a stumbling in back-to-back reports in April and May. The April reading came in at +266K versus a forecast of +1000K (or +1M) jobs added, while the May reading came in at +559K versus a forecast of 650K. The sporadic reopening of the US economy does not appear to be deterring forecasts from anticipating a recovery in US labor market expectations, as falling jobless claims and growing vaccination rates speak well for the country’s labor market potential. The consensus forecasts 700,000 new jobs, while the unemployment rate (U3) is expected to fall from 5.8% to 5.7 percent. Meanwhile, the labor force participation rate in the United States is expected to be 61.7 percent. Calculator for Job Growth at the Atlanta Fed (June 2021) (Graph 1) Even if the jobs report is positive, the US still has a long way to go before it reaches ‘full employment,’ as it did before to the pandemic. According to the Atlanta Fed Jobs Growth Calculator, the US economy will need to add +740K jobs per month for the next 12 months to return to the pre-pandemic US labor market of 3.5 percent unemployment (U3) and 63.4 percent labor force participation rate. The predicted figures aren’t likely to cause the Fed to change its approach during the summer months; taper talk won’t start in earnest until at least August in Jackson Hole or the September FOMC meeting. Timeline for taping The perceived timing of the Federal Reserve’s intention to reduce its asset purchases has sparked a lot of debate, which is certain to continue regardless of the outcome of the June US NFP data. This is due in part to the Fed’s open market desk’s continued high activity, which reached a new all-time record of $991.939 billion at the end of the month and quarter yesterday. Given these factors, it appears that market players have valued the taper timeframe as follows: From June to September 2021, there will be a taper period. Tapering will begin in September 2021, according to official indications. Taper targets are set to be released in December 2021. Beginning of the taper in January 2022 ($15 billion in monthly decreases) The taper will end in September 2022. The first rate hike will occur in January/March 2023. (3-6 months post-end of taper) ‘High’ Rate Events, Next 48 Hours, DailyFX Economic Calendar (Table 1) —- Christopher Vecchio, CFA, Senior Currency Strategist wrote this article./n
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