· Soft US employment report eases fears around stimulus rollback
· Dollar sinks in the aftermath, equities cruise to new record highs
· Pound smiles after Scottish election results, gold sparkles
NFP disappointment derails Fed tapering speculation
A very disappointing US jobs report sent markets into a tailspin on Friday, as investors recalibrated their portfolios to reflect a longer period of support from fiscal and monetary authorities. Nonfarm payrolls clocked in at only 266k in April, falling miles short of the 978k forecast, while the prints over the previous two months were also revised lower.
There was some disbelief around the quality of these data, with some market participants blaming seasonal adjustments for the huge NFP miss and others pointing the finger at generous unemployment benefits that may have discouraged workers from trying too hard.
The takeaway was that the US economy is not doing quite as great as everyone thought, which means the Fed won't take the monetary punchbowl away anytime soon and that President Biden might have an easier time pushing his spending proposals through.
The dollar was hit with a steamroller as expectations of a QE withdrawal this year evaporated, but that was music to the ears of equity traders, who went on a buying spree that propelled the S&P 500 to a new record high.
Bond market has doubts, sterling parties
Not everyone was convinced by the NFP miss, though. The bond market told a different story as 10-year Treasury yields finished the session higher, signaling that this may have been just a 'bad month' that doesn't change the entire Fed narrative. This helped the dollar stabilize early on Monday.
Over in the UK, the pound is in a jolly good mood to start the new week after the Scottish National Party narrowly failed to secure an outright majority in elections for the local parliament. The SNP got 64 seats, falling one seat short of an overall majority. Still, the Green Party will throw its weight behind the SNP to form a coalition that seeks another independence referendum for Scotland.
That seems like bad news, but the pound's reaction suggests that with the SNP unable to secure that absolute majority, there isn't a clear democratic mandate to pressure London into granting another referendum anytime soon. Hence, it's a narrow win for pro-union forces as the Conservative government can keep rejecting calls for another vote.
With political risk fading for now and the Bank of England preparing the ground for ending QE later this year as the British economy kicks into higher gear, the outlook for sterling remains favorable.
Gold cruises higher, oil lifted by cyberattack
Bad news for the dollar is great news for gold prices, which shot higher after the US jobs disappointment. The stars seem to have aligned for the yellow metal, with the Fed set to keep its foot heavy on the QE pedal even as supply-side pressures drive inflation higher over the next months.
In the energy arena, crude oil prices are trading higher on Monday after a cyberattack forced some critical pipelines in the US to shut down. Supply disruption episodes usually don't have a lasting impact on markets though. The real narrative lies in Vienna, where the nuclear negotiations between Iran and America seem to be making headway.
A dramatic return of Iranian production to the market doesn't seem priced in at these levels, so this could be a huge theme over the summer as oil traders try to balance an improving demand outlook against a potential flood of supply.