Countdown to Jobs – A Key Component in Shaping the Feds Tapering Timeline

It will be the last report the Federal Reserve will use to determine their monetary policy at this month’s FOMC meeting.

Forecasts from economists believe that the U.S. Labor Department is expected to report that the economy generated 720,000 new jobs in August. These figures include employment in local, state, and federal jobs. If the actual numbers come in close to or above the forecast, it will give hawkish Federal Reserve members the most recent economic data to make their case. The last jobs report was exceedingly strong as the Labor Department reported that 943,000 new jobs were added in July.

According to MarketWatch, “Another strong report could nudge the Federal Reserve to move up its plans to start unwinding its easy-money strategy meant to prop up the economy. The central bank has said it plans to do so before the end of the year.”

This report comes on the heels of yesterday’s ADP private-sector jobs report, which anticipated that there would be an additional 600,000 jobs added last month, according to economists polled by Dow Jones. However, the actual numbers were disappointing and far below the estimates. The ADP report yesterday shows that payrolls had gained 374,000 individuals.

As reported by CNBC, Mark Zandi said, “The delta variant of COVID-19 appears to have dented the job market recovery. Job growth remains strong but well off the pace of recent months. Job growth remains inextricably tied to the path of the pandemic.”

Analysts point to the fact that the numbers released by ADP could be pointing to a softer Labor Department report with the caveat that the ADP count has been an unreliable indicator in 2021 as it pertains to the Labor Department’s report. One example is the July reports in which ADP reported an additional 326,000 individuals added to payrolls, with the Labor Department reporting that 943,000 jobs were added.

CNBC also cited an analyst at Goldman Sachs, saying that “the ADP report suggests potential downside for Friday’s Bureau of Labor Statistics number. Goldman already is forecasting below-consensus payroll growth of 600,000.”

Also, Nela Richardson, chief economist at ADP, spoke to CNN Business reporters, saying, “Our latest report suggests that the labor market recovery has downshifted… Increased spread of the virus might again keep people from returning to work.” Suggesting that “the final estimate of job gains for August will likely fall short.”

The importance of tomorrow’s jobs report cannot be underestimated in that it is the last employment or important piece of data that the Federal Reserve will have ahead of the September FOMC meeting. Regardless of the Labor Department’s jobs report tomorrow, it is clear that if the numbers come in at current forecasts, it would create additional bearish market sentiment for the safe-haven class, and therefore gold. At the same time, if it comes in well under forecasts as some analysts anticipate, it would provide strong bullish tailwinds for gold to move higher. It would continue to pressure Federal Reserve members to expand their time frame to begin tapering their monthly asset purchases.

Reuters put it systemically in a report published today. They summarized recent statements by Fed members including Chairman Powell and its effect on the dollar and the timeline the Fed will introduce to begin to taper. “The dollar has been on the defensive over the past couple of weeks as doubts have crept in about when the Federal Reserve will start unwinding its stimulus. Last Friday, Fed chair Jerome Powell said that the jobs recovery would determine the timing of asset purchase tapering. Dovish comments from Powell and other Fed policymakers in addition to data misses have seen the greenback index lose around 1.4% versus a basket of currencies since hitting nine-month highs on Aug. 20.”

As of 3:57 PM, EDT gold futures continue to trade above $1800 per ounce, basis most active December 2021 Comex contract is down $3.80 and fixed at $1812. with the most recent bias indicating a sideways trading range as market participants await tomorrow’s jobs report release.

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Wishing you, as always, good trading and good health,

Gary Wagner