On September 30, ATFX commentary: The National Day holiday is approaching, and the festive atmosphere is growing stronger, but the release of important international market data is not affected by the domestic holiday. Today, close attention must still be paid to two major data releases: the US September ADP non-farm private employment data and the US August PCE price index annual rate. The former is crucial for assessing the non-farm payrolls report to be released this Friday, while the latter is a core basis for the Federal Reserve's monetary policy decisions. The release of both data sets on the same day could trigger sharp fluctuations in gold and the US dollar index.
At 20:15 today, the US September ADP data will be released, with a market expectation of 70,000, far higher than the previous value of 38,000. If the expectation materializes, it would mean the US job market is relatively stable. At 20:30 today, the US Department of Commerce will publish the August core PCE price index annual rate, with the previous value at 3.3% and market expectations for it to remain flat. If the expectation materializes, it would mean the US high inflation problem has not yet worsened.
Chart 1: US New Non-Farm Payrolls - ATFX
The ADP data release has a relatively weak impact on gold and the US dollar index, and is mainly used to assess changes in new non-farm payrolls on Friday. In August, new non-farm payrolls jumped to 162,000, far above the previous value of 21,000. The current market expectation for September ADP data is also significantly higher than the previous value (70,000 versus 38,000), which may mean this Friday's non-farm payrolls report will continue to show strong recovery in the job market.
Chart 2: US PCE Data (Bar Chart) and CPI Data Overlay - ATFX
US CPI data is released earlier than PCE data, and the two have a high degree of overlap in statistical samples and methods, so the CPI release can be used as a forward-looking indicator for the PCE result. The August core CPI annual rate was 2.4%, lower than the previous value of 2.5%, but the decline was very small. This means the August PCE price index annual rate may be lower than the previous 3.3%, but the deviation will not be too large. Federal Reserve Chairman Kevin Warsh is committed to bringing the inflation rate down to the long-term target level of 2%. Currently, both the core CPI annual rate and the core PCE annual rate are far above the target, meaning the Federal Reserve may adopt a relatively aggressive rate hike policy this year. According to CME FedWatch estimates, the probability of another 25 basis point rate hike at the October FOMC meeting has risen to 70%, which also reflects the interest rate market's strong concerns about the potential high inflation problem in the United States.
On the news front, Federal Reserve Governors Williams and Barr both explicitly expressed support for rate hikes on the same day. The former said: "It may be appropriate to make another increase to the target range for the federal funds rate later this year"; the latter said: "Further policy adjustments may be needed." The two made hawkish remarks for the same reason: to push the inflation level back to the target in a more timely manner.
In terms of market action, the US dollar index has continued to rebound since September 9, and its market price has firmly stood above the 101.00 integer level, driven by the Federal Reserve's continuously strengthening rate hike expectations. The 10-year US Treasury yield has risen to 5.234%, greatly enhancing its yield appeal compared with other countries, which may drive international funds to shift from the gold market to the US Treasury market. Gold prices have repeatedly fallen sharply, touching a low of $4,110 this week, getting closer and closer to the $4,000 psychological threshold. As the yields on US dollar assets continue to rise, it will be extremely difficult for gold to bottom out and rebound in the short to medium term.
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