Market Weekly Review: Conflicting US Data Obscures Inflation Outlook, Gold Prices Plunge and Rebound, Strong Dollar Plummets, Fed Sticks to Debt Reduction Timeline

  Gold Early this week, it was impacted by the strong US non-farm payroll figures for July Non-farm payroll The impact was significant, Gold prices showed a sharp drop, falling over 80 US dollars , reaching a low of $1679.38. The US dollar rose sharply at the beginning of the week, approaching the 93 mark. The week was full of important developments, Federal Reserve Most officials continued to maintain a hawkish stance, providing an outlook on the timeline for reducing bond purchases. However, the CPI, PPI, and import price data released by the US showed extremely hawkish and dovish signals, confusing investors about the prevailing sentiment regarding inflation prospects. Before the weekend, the University of Michigan's Consumer Sentiment Index for August and the US Import Price Index for July performed far worse than expected, causing the dollar to fall sharply to 92.52. Gold and silver rebounded, with gold reaching $1779.34 and silver reaching $23.74, recovering lost ground.

Looking back at Friday, data released by the US Department of Labor showed that US non-farm employment increased by 943,000 in July, the largest increase since August of last year. In July, the unemployment rate fell to 5.4%, a new low since April of last year. In this report, both the private sector and manufacturing employment grew, and monthly and annual wages also increased. This is a very encouraging report. Reuters believes that the robust job growth in July, driven by labor demand in labor-intensive service industries, suggests that the economy will maintain strong momentum in the early second half of the year.

The optimistic outlook for labor market recovery plays a crucial role in the timeline for the Federal Reserve to reduce the scale of bond purchases. Looking back at previous statements by Federal Reserve Chairman Powell, he hoped to see a strong employment report before beginning to reduce the $120 billion monthly bond purchase plan, and this US non-farm employment report was like a timely rain, seen by the market as the substantial progress Powell spoke of.

Early this week, the number of US job openings in June, as reported by JOLTS, reached a record high of 10.073 million, indicating that US businesses still face difficulties in recruitment. Data released by the US Department of Labor showed that US non-farm employment increased by 943,000 in July, the largest increase since August of last year.

The US Consumer Price Index (CPI) for July showed a 0.5% month-on-month increase, compared to a 0.9% increase in the previous month, in line with analysts' expectations. The year-on-year increase in the US CPI for July was 5.4%, remaining above 5% for three consecutive months, compared to an expected increase of 5.3% and a previous value of 5.4%. The slight drop in the July CPI eased pressure on the Federal Reserve regarding when to reduce the scale of asset purchases.

The US Producer Price Index (PPI) increased by 1.0% in July, following a 1.0% increase in June. In the 12 months to July, the PPI jumped 7.8%, a record high since the index was introduced over a decade ago. The Producer Price Index (PPI) excluding volatile food, trade services, and energy components increased by 0.9% last month, compared to an expected increase of 0.5%.

The US Department of Labor said on Thursday that initial jobless claims fell slightly last week, as the US labor market continues to recover from last year's recession. 375,000 people applied for unemployment benefits last week, meeting market expectations, compared to 385,000 in the previous week. Initial jobless claims have fallen for the third consecutive week, falling below the key psychological level of 400,000. Continuing jobless claims also fell below 3 million, approaching pre-pandemic levels.

On Friday, the University of Michigan released its preliminary consumer sentiment index, which fell to 70.2, the lowest since December 2011, significantly lower than the 81.2 in July. This data was significantly lower than expected, as the market generally expected the consumer sentiment index to remain roughly the same as the previous value. The report also showed that the current conditions index fell to 77.9, down from 84.5 in July. The expectations index fell from 79 to 65.2. Consumers expect inflation to remain at a high level. One-year inflation expectations are 4.6%, down from 4.7% in July.

The US import price index for July recorded a monthly increase of 0.3%, the lowest since November 2020, compared to an expected increase of 0.6% and a previous value of 1.0%.

Atlanta Federal Reserve President Raphael Bostic said he expects to begin reducing bond purchases in the fourth quarter of this year, but he is also willing to do so earlier if the job market continues to recover strongly. He pointed out that long-term interest rates are rising, and he believes that if the data is this strong in the next month or two, the Federal Reserve's goals will make substantial progress. He also emphasized that strong market operations mean that relatively rapid asset purchase reductions can be achieved. This shows that Bostic and Richmond Federal Reserve President Thomas Barkin both believe that inflation has reached the Federal Reserve's target of 2%.

After continuously releasing hawkish statements since the beginning of the week, Federal Reserve officials have not stopped, successively stating that inflation is only temporary. However, Chicago Federal Reserve President Charles Evans showed a dovish signal, stating that the current high inflation is temporary and not enough to tighten monetary policy prematurely, and the Federal Reserve needs to see more labor market data before making any real changes.

Dallas Federal Reserve President Robert Kaplan said the Federal Reserve should announce a plan to reduce bond purchases in September and begin implementation in October. Richmond Federal Reserve President Thomas Barkin said he strongly supports reducing bond purchases as soon as possible to return the economy to a more normal environment. Kansas City Federal Reserve President Esther George also mentioned that as the economy recovers, it is necessary to transition from a very loose monetary policy to a more neutral environment.

Craig Erlam, senior market analyst at Oanda, believes that gold is now in a relatively stable trend after the turmoil at the beginning of the week. He said, "One point that may limit the downside is that the market has already largely reflected expectations of the Federal Reserve's reduction of asset purchase plans, so if Federal Reserve officials continue to make hawkish comments, their impact will gradually weaken."

Another senior market analyst, Edward Moya, pointed out that the flash crash in gold at the beginning of the week was due to two factors: Asia rushed to bet on the Federal Reserve's shortened timeline, and concerns about the slowdown of the Asian economy intensified, causing a plunge in commodities. He also mentioned that due to holidays in Japan and Singapore, the Asian session trading The subdued market may also be a factor contributing to the volatility of commodities earlier this week.

Moya added that China's new anti-epidemic measures to combat the Delta variant should help support gold prices, but may also exacerbate concerns about the health of the Chinese economy. He explained: "China is one of the largest buyers of gold and other commodities, and China has stepped up its efforts to control the epidemic. Beijing health authorities canceled all major exhibitions and events in August last week."

Forexlive analyst Eamonn Sherida said there are three major reasons for the gold flash crash. He pointed out that firstly, gold prices rise during inflation, but current inflation is temporary and will not last, at least that's what the market has been told. Secondly, gold rises during periods of low interest rates, but some central banks will soon be reducing bond purchases and subsequently raising interest rates, such as the Reserve Bank of New Zealand, which the market expects to raise interest rates as early as August.

AvaTrade's chief market analyst, Naeem Aslam, mentioned in a report that after data on Wednesday showed a slight slowdown in US consumer price inflation, economists believe that the data may reduce the urgency for the Federal Reserve to end its loose monetary policy. He said: "This data will force the Federal Reserve to pay closer attention to upcoming reports before making decisions related to monetary policy."

Chintan Karnani, head of research at Insignia Consultants, said he is focusing on the timing of balance sheet reduction. Overall, if the US releases economic data that continues to exceed expectations, the Fed could reasonably accelerate balance sheet reduction. If the economic data shows signs of slowing down, the timing of balance sheet reduction will be delayed, and gold may break through the current triple top of $1836.

Foreign Exchange Market:

The US dollar index plunged to a one-week low on Friday, as the University of Michigan's consumer sentiment index for August showed that the spread of the Delta variant of the coronavirus may slow down the economic outlook, causing the US dollar index to fall 0.3% this week. In late trading in New York, the US dollar index fell 0.5% to 92.521, its lowest level since August 6.

British Pound Rose 0.5% against the dollar, but it was the second consecutive weekly decline. The UK's second-quarter economic growth rate met market expectations, and investors are looking for new catalysts to affect the pound's outlook. Euro Appreciated 0.55%, to $1.1794; Australian Dollar Appreciated 0.44%, to $0.7568. Bitcoin continued to fluctuate above $46,000, and has now broken through the three-month high of $46,787 reached on Wednesday, reaching $47,637.39.