As the NFP Approaches, Risk Appetite Remains on the Rise

Market players around the world will be looking for confirmation of the Fed’s tapering timeline in Friday’s NFP report. If the official figure comes in around the median projection of 488k, US officials will be able to start tapering their bond purchases. After all, Fed Chair Jerome Powell has declared that the inflation conditions for tapering have been met; all that is left is for the US labor market to continue to improve. The better-than-expected Markit and ISM services sector readings for September also show that the US economic recovery is strong enough to warrant the Fed pausing its bond-buying program.

The tumultuous week continues, with markets chasing their shadows in a light data week heading to Friday’s key event, US Non-Farm Payrolls. Earlier, stronger services PMI data from Europe and the United States was enough to clear out the buy-the-dippers in equities markets, which outperformed the Asian session. Undoubtedly, after being singled out for attention the day before, US technology heavyweights excelled.

Spot gold has been stuck in a $23 range around $1750 so far this month, with markets afraid to make a major move ahead of the next US employment report. Gold prices are falling as markets adjust to the increased likelihood of Fed tapering, which is lifting the currency and real rates in the United States. If the NFP report on Friday beats market expectations, spot gold might break out of its month-to-date range and revisit the end-of-September lows around $1720.

Although fears of economic stagnation and actual bullion appetite may provide support for gold, a stronger floor may only come around $1670, which held up well in the first quarter of the year. This suggests that gold has further downside potential, which might be realized if Treasury yields and the US dollar continue to rise.

Surging USD Has Shifted Focus to NFP

The NFP is expected to have increased by 450k in September, bringing the unemployment rate down to 5.1 percent. Wage growth is forecast to speed up as well, with average hourly earnings expected to rise to 4.6 percent from 4.3 percent last year.

During the month, labor market data were mixed. In the ISM manufacturing survey, employment growth surged, but it slowed in the services sector, which accounts for a significantly larger portion of the economy. Similarly, the Markit PMIs revealed that job creation increased, although was below historical averages.