The United States appears to be experiencing a soft landing, a scenario that bodes well for the stock market but poses challenges for the U.S. dollar. The greenback has already faced significant pressure and may encounter further headwinds in the future.
According to recent reports from the U.S., the country added only 150,000 jobs in October, which is slightly lower than the pre-pandemic monthly average of nearly 200,000 job additions. However, it’s essential to note that this doesn’t necessarily signify an economic recession. Furthermore, September’s data, after revisions, saw a reduction of 39,000 jobs. The unemployment rate has risen to 3.9%, worse than expected, though the absolute figure remains relatively high.
Wage growth is a mixed bag—monthly growth at 0.2% falls short of expectations, but the year-on-year growth stands at 4.1%, surpassing the anticipated 4%. Nevertheless, it is indicative of a labor market that is gradually cooling down.
The data is weak enough to reduce the likelihood of an interest rate hike, cementing the end of the tightening cycle. This is unfavorable for the U.S. dollar. However, these statistics are not so weak as to drive investors to seek refuge in the safe-haven dollar.
For the stock market, this presents an ideal scenario—an economy that is neither too hot to trigger interest rate hikes nor too cold to cut into profits. As for gold, the decline in U.S. Treasury yields is a positive development, but concerns linger over the situation in the Middle East.
The current market trends align with previous patterns.
Earlier this week, the Federal Reserve (Fed) held interest rates steady for the second time, as widely anticipated. Federal Reserve Chairman Jerome Powell refrained from declaring the end of the rate-hike cycle, but he did acknowledge a more balanced inflation risk. The gradual decline in wage growth, as evident from the Non-Farm Payrolls report, affirms the validity of his balanced approach.
Equally important is the strong demand for U.S. bonds, fueled by a reduction in debt issuance by the U.S. Department of the Treasury, the Fed’s clearly dovish stance, and remarks from prominent market participants signaling the end of the bond market collapse. The trend favoring bond purchases and consequent yield compression remains robust and is unlikely to be significantly impacted by employment reports.
In summary, the sentiment for risk appetite continues to have room for further expansion.
