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The $1 Million question: Where is the US Jobs Market Headed?

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The jobs report is widely followed by the analysts as it affects all the important markets – equity, bond, gold, and forex. But, what is it that makes the jobs report so important and what is the current trend in the jobs report telling us?

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Key Observations

  • June’s jobs numbers show that the economic recovery is on track
  • Wage growth remains sticky and may hurt inflation numbers if it doesn’t recover
  • For now, the US Federal Reserve unlikely to change its forecast for 2017

Let’s first understand why is the report so important.

What is the Importance of the Jobs Report

The United States is a consumer driven market, with personal spending accounting for 70% of the GDP. The jobs report provides a good insight into the state of the economy, as it gives an idea about the change in the spending power of the American public.

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When the economy is booming, the employers add more employees to cater to the increased demand. Additionally, if unemployment is low, the employers shell out higher wages to attract talent. All these, in turn, puts more money into the employee’s pockets, which is reflected in greater spending that boosts the GDP.

On the other hand, if the economy is struggling, demand decreases and the employers cut jobs to reduce their costs. This reduces the spending power of the consumers. The people who can spend also tend to save to cater for uncertain times. This again lowers demand and it becomes a vicious circle that can lead to a recession.

Nevertheless, it is not enough to have a high employment rate. A growth in temporary jobs, decrease in the number of working hours per week, and low wage growth are signs that the employers are still not convinced of the economy. Such an economy usually shows anemic growth.

What has been the Trend in the Jobs Report since 2009

“The Great Recession” wiped off about 8.8 million jobs by February 2010, from its prerecession peak in January 2008. However, as 2010 progressed, the labor market stabilized and employers began adding jobs encouraged by low interest rates and a confidence that the Fed would do whatever it takes to support the economy.

The average job growth per month rose steadily from 2010, until it peaked at an average monthly addition of 250,000 jobs in 2014. That year, 3 million jobs were added. Since then, the average additions have been decreasing gradually, but have remained above the 2 million mark every year.

In 2016, the average jobs growth was 187,000, which has reduced marginally in the first half of 2017 to 180,000.

However, as the job market matures, the net jobs being added every month will slowdown. After all, the number of jobless people have reduced drastically in the past seven years.

Nevertheless, in June, the economy did not show any signs of a slowdown, as it added 222,000 new jobs, easily beating analysts’ expectations of 179,000 job additions. With the latest report, the US has seen 81 consecutive months of jobs growth.

“We’re been creating close to 200,000 jobs a month now for more than seven years. That’s just an incredible achievement. And that machine is still humming,” said Mark Zandi, chief economist at Moody’s Analytics, after the June jobs report, reports The Washington Post.

However, another critical factor along with jobs, wage growth, remains disappointing

Wage Growth is Weak

The Economic Policy Institute says that “slow wage growth is a key sign of how far the US economy remains from a full recovery”.

In June, the average hourly earnings increased by only 0.2% – an annual gain to 2.5%. Though the labor market has tightened, wage growth has remained sluggish.

Michael Stull, senior vice president at job placement firm Manpower North America, believes that the wage growth is anaemic because the skilled workers are unwilling to take a lower-paying job, while the employers believe that the available workforce is not technically qualified enough for the available positions with a higher pay.

Achieving a 2% inflation can become difficult if the wage growth continues to remain sluggish. So, should the Fed hold their forecast for one more rate hike this year or should they go ahead with it? The analysts are divided.

“Cycles don’t last forever, and we’re late in this economic cycle, and we have the Fed starting to raise rates. It’s a typical combination that causes lower growth and the danger of recession,” said Ed Keon, managing director and portfolio manager at QMA, reports CNBC.

However, most other analysts believe that with a tightening jobs market, the wage growth is likely to catch up in the future and they expect the Fed to go ahead with one more rate hike by the end of this year.

How did the Jobs Number Affect the Equity, Bond, Forex and Gold Markets?

The US stock markets are quoting at a rich valuation; hence, they need evidence that the economy will deliver a strong growth. June’s job report underlined the belief that the economy is picking up steam. As a result, the S&P 500 rallied 0.64%.

A strong economy will aid the Fed’s resolve to reduce its balance sheet and hike rates towards normalcy. Both the above are negative for save haven like gold. Therefore, gold extended its fall on Friday by 1.05%.

The bond traders, however, closely watch the wage growth because it gives a better insight into the inflation expectations. A muted increase in wages is unlikely to push inflation towards the Feds target zone of 2%. Therefore, the bond markets saw a sluggish response. The US 10-year Treasury note rose 2.3 basis points to end at 2.393% – the highest close since May 11. However, the bond yields remain below the highs of above 2.6% achieved in March of this year.

The US dollar index (DXY), which tracks the performance of the Greenback against six major currencies rose a modest 0.2%.

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Analysis

Technical Analysis: Bitcoin Up Again as Altcoins Mixed in Volatile Trading

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Bitcoin is at a new all-time high today, although the momentum of today’s move is far below from what we saw recently, and the coin only managed to reach a marginal record high yet again. BTC is now worth $300 billion, and it is still trading right at the short-term trendline, inside a rising wedge pattern that shows a clear momentum divergence.

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With the short-term trend still being intact further gains are still possible, but as all the majors are overbought from a long-term perspective, we still advise investors to wait for a better buying opportunity before adding to their holdings. Primary support is still found near $13,000, with further levels at $11,300, $10,000, $9000, and stronger levels at $8200 and $7700.

BTC/USD, 4-Hour Chart Analysis

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 XRP entered a volatile short-term correction after its two-day surge after giving a short-term sell signal yesterday, and the coin spiked back towards $0.60 before settling down just below yesterday’s highs. The long-term setup also turned overbought thanks to the almost 300% rally, and now investors should reduce their holdings, even as further gains are still possible. Major support is still found at the prior high near $0.4250 and in the $0.30-$0.32 range.

XRP/USDT, 4-Hour Chart Analysis

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Analysis

Cryptocurrency Analysis: Ripple Continues Rampage as Litecoin and Ethereum Enter Correction

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Ripple remained in the center of attention in the segment after breaking out to a new all-time high yesterday, and the coin almost doubled in value, climbing above the $0.80 level. The currency concluded a 6-month long consolidation pattern with the move after being the only major on a long-term buy signal in our trend model.

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XRP gave a short-term sell signal today, while turning neutral regarding the long-term setup. Investors now shouldn’t add to their positions, although further gains are still possible, and reducing holdings somewhat is a good idea here. Major support is still found at the prior high near $0.4250 and in the $0.30-$0.32 range.

XRP/USDT, 4-Hour Chart Analysis

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While Bitcoin stagnated, and Bitcoin Cash jumped, Ethereum, Litecoin, Dash, and IOTA has been drifting slightly lower, although the recent gains are still mostly intact, and the basic setup in the segment is unchanged.

Litecoin fell below the $300 level after yesterday’s consolidation, and the coin faced strong selling pressure in the latter half of the session. The currency remains extremely stretched regarding the long-term momentum indicators, and although the short-term uptrend is still intact, a deeper correction is likely in the coming weeks, with key support levels found at $125 and $100, and weaker levels at $260 and $170.

LTC/USD, 4-Hour Chart Analysis

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Analysis

Daily Analysis: Dollar Falls, Gold Jumps after Yellen’s Final Move

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Wednesday Market Recap

Asset Current Value Daily Change
S&P 500 2668 -0.02%
DAX 13125 -0.45%
WTI Crude Oil 56.65 -0.68%
GOLD 1258.00 1.35%
Bitcoin 16,100 -6.32%
EUR/USD 1.1842 0.73%

The Federal Reserve hiked interest rates as expected today, and although the central bank’s monetary statement was slightly more hawkish than expected, the market’s reaction didn’t reflect the much-anticipated move. The worse than expected Core CPI reading that underlined the low-inflation narrative weighed on the recently strong Greenback, while stocks were unchanged after decision and bonds gained ground as yields retreated.

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EUR/USD, 4-Hour Chart Analysis

The major indices are hovering near their all-time highs with the DOW leading the way higher, hitting a new record for the second day in a row. While volatility Is expected to remain low as we approach the end of the year, market internals and valuation levels are still concerning from a long-term perspective, and stocks outside the US are also negatively diverging. The action in crude oil could be slightly more interesting as the commodity is starting to act in a slightly bearish manner after a grinding multi-month rally.

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WTI Crude Oil, 4-Hour Chart Analysis

The Brexit process is still in the center of attention in Europe, although volatility took a nosedive on the old continent as well, and it’s unlikely that the Christmas period will be much different, given the predictable drop in volumes and trading activity. The date of the next election in the financially and politically troubled Italy has been set to March 4th next year, and the early date caused some turmoil in the countries assets, which dragged the Euro Stoxx 50 lower today, together with the DAX and the other major indices.

Cryptocurrencies

As the total market cap of the crypto-market crossed the incredible $500 billion mark, Ripple, NEO, and Ethereum made headlines with lofty gains in the face of the severely overbought readings elsewhere in the segment. While XRP and NEO are still not overbought from an investment perspective, Ethereum reached our final target for its break-out and triggered a long-term sell signal.

ETH/USD, 4-Hour Chart Analysis

The previously surging IOTA continued its correction, Litecoin consolidated in a relatively narrow range, while Dash, ETC, and Monero scored marginal new highs before turning lower together with BTC. The most valuable coin that has lost some of its momentum “mojo” in recent days fell back below last week’s highs, and that could mark a failed break-out and a start of the deeper correction that seems more and more likely.

BTC/USD, 4-Hour Chart Analysis

Key Economic Releases on Wednesday

Time, CET Country Release Actual Expected Previous
11:30 UK Average Earnings 2.5% 2.5% 2.3%
11:30 UK Claimant Count Change 5,900 3,300 6,500
11:30 UK Unemployment Rate 4.3% 4.2% 4.35
15:30 US Core CPI 0.1% 0.2% 0.2%
15:30 US Crude Oil Inventories -5.1 mill -3.6 mill -5.6 mill
21:00 US Fed Rate Decision 1.5% 1.5% 1.25%
21:00 US FOMC Statement

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