Volatility persisted in markets as fears of a lingering recession weighed on risk sentiments while hopes of a Fed pivot had investors cheering up.
The US Dollar Index (DXY) slipped below 102 levels as signs of a cooling labour market buoyed hopes of Fed changing its monetary policy stance. US jobless claims jumped to the highest since December while Jolts jobs openings slipped below 10 million for the first time since May 2021, both pointing towards slowing job growth. US private employers hired 1,45,000 workers in March, much lower than expected 2,00,000, thereby adding to evidence of a cooling labour market.
However, the greenback managed to see some recovery from two-month low of 101.415 hit earlier in the week and closed the week near 102 with a modest decline as investors booked their shorts and avoided building fresh positions ahead of the most crucial jobs numbers. Although the US NFP (non-farm payrolls) print might give further direction to DXY, price action is pointing towards further downside until the resistance of 102.60 holds on a closing basis. The bears might target 100.82 zone hit in February this year.
String of weaker-than-expected economic data from the US sparked investor concerns that the aggressive tightening campaign of the Federal Reserve to tame inflation has not only slowed the economic momentum as desired earlier but also triggered fears of a significant recession. This buoyed demand for safe haven assets, pushing COMEX gold to 13-month high of $2,049.2 per troy ounce and MCX prices to an all-time high of Rs 61,181 per 10 gms.
Crude oil extended its spectacular rally to highest levels since January and closed 6 percent higher this week thanks to surprise output cut announcement by OPEC+ and more-than-expected draw in US oil stocks. However, oil prices eased from higher levels while base metals witnessed a weekly decline as US manufacturing PMI contracted for a fifth consecutive month in March, likely weighed down by tighter credit conditions.
Taking into account the US jobs market data releases this week, investors are expecting a pessimistic labour report. With the market expectations currently evenly split between a 25 bps rate hike and a pause, the NFP report will help tip the scales for the Federal Reserve. NFP additions are potentially expected to slow towards 2,00,000 from 3,11,000 in February, while another important metric to watch out for is average hourly earnings, leading indicator of wage inflation.
Any unexpectedly strong reading could push the odds of a 25 bps rate hike higher. If the jobs report shows cooling labour markets as expected, we may see a further decline in US treasury yields and the DXY, which might push COMEX gold closer to all-time high of $2,089 per troy ounce touched in 2020.
Also, investors will watch out for extended weakness in inflation and retail sales from the US next week, both of which slowed in February. Speeches by several FOMC members and FOMC meeting minutes may throw some more light on the policy outlook.
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