January US NFP Beats Estimates, Markets Dial Back Dovish Bets Further

Gold prices took a nosedive following the release of January's Nonfarm Payrolls (NFP) data by the United States Bureau of Labor Statistics. The report revealed a staggering 353K new hires, surpassing the consensus of 180K and December's 216K fresh payrolls. Despite investor expectations for a slight uptick to 3.8%, the Unemployment Rate held steady at 3.7%. The inflation outlook turned notably stubborn as Average Hourly Earnings outpaced market estimates. Monthly earnings surged by 0.6%, compared to December's 0.4% growth, defying projections of a 0.3% decline. Annual wage growth soared to 4.5%, surpassing expectations of 4.1% and the previous reading of 4.4%. This robust labor market data is anticipated to sway Federal Reserve policymakers towards maintaining higher interest rates for an extended period. Fed Chair Jerome Powell emphasized in the monetary policy statement that policymakers require increased confidence in inflation to sustainably return to the 2% target. The NFP report underscored strong labor demand, with employers offering higher wage growth than anticipated. The prospect of buoyant wage growth raises concerns about persistent price pressures, potentially quashing hopes for Federal Reserve rate cuts in March. According to federal funds futures, there's a 61% probability of a 25 bps rate cut in May, down slightly post-employment data release. The expectation for the first rate cut, following a two-year tightening campaign, has shifted from March to May. During his latest press conference, Fed Chair Jerome Powell indicated that a dovish decision in the March meeting is improbable, as the central bank remains unconvinced about inflation reaching the 2% target by then. Economic indicators, including robust consumer spending, a declining jobless rate, and a rebound in factory data, have left Fed policymakers uncertain about price stability. Thursday's report from the US ISM revealed a sharp rise in the Manufacturing PMI for January to 49.1, surpassing expectations of 47.0 and the previous reading of 47.1. Despite this improvement, the PMI remained below the 50.0 threshold. The New Orders Index witnessed a substantial increase to 52.5, up from 47.0 in December, suggesting an enhanced factory order book and indicating an upturn in demand.