US and European futures are still digesting the message from the US NFP data released on Friday. There is no doubt that market players have been apprehensive about recession and stagflation, but the US jobs numbers have told us that this recession is not like other recessions as the job market is strong. The confirmation that the job market is strong came on Friday when the data printed a reading that shocked the market players. Last month, the news of job freeze and massive layoffs worried traders that falling job numbers and eroding disposable income would make the situation worse for the US economy. But US NFP data easing off those concerns is undoubtedly good news for the market but remember we are still not out of the woods, and this could be driving the price action today.
Investors will be watching the US Consumer inflation data very closely, and it is the most important economic event for this week in the US. We know inflation is sitting at a 40-year high, making the Fed adopt the most hawkish monetary policy in decades. The Fed is determined to lower inflation, and its support for this matter is unconditional. The hope among investors and traders is that this week they will get to see a reading that will confirm that inflation in the US has reached its peak level, and if that happens, it will provide some comfort to many traders in the market. Yes, it would take a long time for inflation to return to its average level or for market players to get used to a new average level, but inflation reaching its highest level would provide comfort for traders.
Another critical factor driving the price action this week will be the beginning of the earnings season. Remember, last month, we saw a lot of volatility creeping into the market, and that was because of warnings triggered by companies like Walmart. Their warnings made traders nervous that consumers aren’t spending, and higher inflation number has eroded their disposal income. But things have improved somewhat since then as oil prices have eased a little from their highs; last week, we did see oil prices dropping below the $100 mark for a brief moment which was a clue that oil prices have formed a peak and the lath of the least resistance could be skewed to the downside.
In terms of earnings, Pepsi will announce its earnings on Tuesday, and Delta Air will report its earnings on Wednesday. JP Morgan and Morgan Stanley will kick off the banking sector’s earnings on Thursday. We will hear from Wells Fargo, Citigroup, and PNC Financial, reporting theirs on Friday.
Back in the UK, the focus is on the political drama as the situation continues to unfold wild cards. The race is on who will replace Boris Johnson, and traders are hoping that the new leaders will have a more sensible approach to resolving the Brexit issue and, more importantly, bring the growth back on track as soaring inflation has knocked it out of its place. Sterling will be an interesting currency here among investors, and the fact is that a change of leadership alone isn’t going to fix everything yet. A cocktail of the right fiscal and monetary policies could bring matters on the right side of the track.
As for the stock news, Twitter is going to be an intriguing one. Musk has confirmed that he Is no longer interested in the company, and the stock price is going to see a wild price action today. Twitter’s board is confident they will take legal action against Elon Musk, and he cannot move away from the deal that easily.
The precious metal’s price action is driven by the dollar index, which is holding on to its strength. The fact is that US NFP data has provided support for the Fed’s hawkish monetary policy; the next interest rate will likely be 75 basis points, which means that the dollar will pick more strength, and the gold price is likely to lose more shine.