U.S. ADP Employment Less Than Expected U.S. Dollar Drops

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2018-05-31

FX168 Financial Newspaper (Hong Kong) News Spot gold continued to rise slightly on Wednesday (May 30th), with the highest intraday price in the US market rising to 1302.80 US dollars per ounce. The gold price was running above 1300 but the short-term fluctuations were intense. Some fundamental changes have taken place in the market on Wednesday, but it seems that the impact on gold prices is not very clear. The May ADP employment report released in May added 178,000 new jobs and is expected to reach 190,000 people. At the same time, ADP’s new employment was significantly reduced from 204,000 to 163,000 in April. In the United States, the number of ADP employment in May was lower than expected because job vacancies could not be met and the labor market was insufficient.

Other important data released on Wednesday included the first quarter GDP. According to data released by the US Department of Commerce, the United States’ annual real GDP in the first quarter was revised by 2.2%, which was less than the expected 2.3% of the initial value. In the first quarter of the year, the United States' personal consumption expenditure (PCE) annualized quarter-to-quarter revision was 1%, which was lower than the expected 1.2% and was also lower than the initial value of 1.1%. This is the lowest growth rate since the second quarter of 2013, mainly due to the small contribution of the service industry. Analysts said that due to the impact of inventory investment and consumer spending that accounted for over two-thirds of U.S. economic activity, the U.S. economic growth slowed slightly higher than the initial value in the first quarter.

In the external market, the US dollar fell sharply after the Bank of Canada announced on Wednesday that it would keep interest rates unchanged. The US dollar index recorded a larger decline, hitting 94.03 at the lowest level, testing 94 support levels. US stocks rebounded on Wednesday and the three major stock indexes rose. Crude oil also experienced a strong rebound after undergoing a downward revision for the past week, with US oil and cloth oil gaining more than 2% each. As of press release, the US dollar index fell 0.73, or 0.77%, to 94.13. The Dow rose 1.13% to 24637.61 points. The S&P 500 rose 1.24% to 2723.23 points. The Nasdaq rose 0.97% to 7468.40 points. US oil rose 2.44% to $68.36/barrel and cloth oil rose 2.66% to $77.50/bbl.

In the middle of this week, geopolitical risk concerns continue to pervade. It is reported that Di Maio, the former head of Italy’s "Five Star Movement Party" met with the country's President Mattarella on Wednesday. According to foreign media reports, Dimayo called on suspected European economist Paolo Savona to abandon the economic minister's candidacy. According to foreign media reports, Matarella may be reconsidering his plan for interim government, or Dimayou may be reconsidering whether to let Savona serve as minister of finance. After the latest news came, Italian 10-year bond yields fell 23.3 basis points, fell below the 3% threshold to 2.932%. Earlier in the day, the index was once as high as 3.148%; the stock market rose 1.8%; the euro rebounded.

Samuel Laughlin, precious metals trading and sales arm of MKS (Switzerland) SA, said that gold continues to seek the direction of political turmoil in Italy, followed by Spain. He said, “Gold has encountered strong resistance in trying to break through the $1300 and the more important 200-day moving average of $1,307.80. It is expected that the development of Europe and continued weakness in U.S. yields will support the metal trend. However, the current downward trend needs to be respected. If you look at the long-term development."
From a technical point of view, the bears are still dominant, and the price of gold is still in a seven-week downtrend channel on the daily chart. If gold can remain above it after returning to 1300, it will further challenge the 200-day moving average at a level of about $1307/oz. If the challenge is successful, it is possible to regain the upward trend. Downside support at the 1300 mark and the Fibonacci support of the 1286, if the above level falls, the price of gold will likely fall back to the previous low of 1281.81 US dollars per ounce.

U.S. GDP in the first quarter and small non-farm economy perform poorly.

The revised annualized quarterly rate of US real GDP in the first quarter of the US time released at 20:30 on Wednesday was 2.2%, which was less than the expected 2.3% of the previous year's value; the US’s actual personal consumption expenditure quarterly rate was revised at 1% in the first quarter. Below the expected 1.2%, the previous value was 1.1%; in the first quarter, the revised annual core PCE price index value was 2.3%, which was lower than the expected 2.5%, and the previous value was 2.5%.

(U.S. GDP Chart, Source: Zeroohedge, FX168 Financial Network)
The Fox Business News commented that the US’s real GDP performance in the first quarter was slightly lower than expected, but tax reform may boost economic activity during the year. With the stabilization of consumer spending, business investment, and industrial production in April, the data released signals that GDP growth will be likely to accumulate kinetic energy in the early second quarter. Economists had expected that the 1.5 trillion yuan tax reform plan will boost economic growth this year to nearly 3%.
The ADP data announced earlier was also not as expected. Data show that in the United States in May, ADP employment data recorded an increase of 178,000, which is the second lowest since October, which is an increase of less than the expected increase of 19,000, and the previous increase was 204,000.

(ADP employment figures in the United States, source: Zeroohedge, FX168 Financial Network)

Moody's chief economist Jandi commented that employment growth was strong but it was slowing because companies could not fill record-setting job openings. Payroll growth has accelerated, especially for young people's jobs, emerging jobs, and salary changes for those who change jobs. Finding workers has gradually become the number one problem for enterprises.

ADP’s vice president of employment data company said that the overheated job market began to cool slightly due to continued tightening of the labor market. Medical health and professional services are still the main driving force in the service industry and the labor market.

According to the Federal Reserve’s observation tool Fedwatch, the probability of the Fed raising interest rates by 25 basis points in June this year to the 1.75%-2% range is 83.7%.

In addition, given the strong positive correlation between ADP data and non-agricultural employment data, traders often use ADP reports to further calibrate the expectations of Friday (June 1) non-farm employment report. The current market forecast for non-agricultural production in May increased by 188,000, with a previous increase of 164,000; the unemployment rate in May is expected to be 3.9%, which is in line with expectations.

At 00:34 GMT, spot gold was reported at 1301.44 US dollars per ounce, up 2.84 US dollars, or 0.22%.

(Spot gold daily chart source: FX168 Financial Network)
Proofreading: Sibin

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