Dollar stronger after NFP. Oil more expensive after OPEC+ decision

The report from the US labor market turned out to be mixed. The change in employment was much more than forecasted, while the unemployment rate increased significantly more than expected. Wall Street indices finally closed the day in the black. The best performer was the Dow Jones, which moved "north" at the time of data release and then continued its gains. The dollar is stronger. The market is currently around 30%. chances for another 25 bp rate hike in June by the Fed.

Will the Fed pause?

Monthly NFP report shows mixed picture of the labor market. While the change in non-farm payrolls surprised with an increase of 339, other details point to a slowdown. The Fed has received another batch of numbers to interpret. The probability of a mark-to-market rate hike has slightly increased, but the Federal Reserve is still more likely to take a pause as they want to wait for further effects of the monetary tightening that started in March 2022.

In May, the change in employment in the non-agricultural sector amounted to 339. and was much higher than expected (195 thousand). Moreover, the gains from the previous two months were revised upwards by a total of 93. However, the unemployment rate rose surprisingly significantly from 3,4 percent to up to 3,7 percent

Currently, the market assumes about 30 percent. chances for a raise in June. Moments after the reading, it was close to 37 percent. On Thursday, Fed Funds futures were slightly above 20%. chance of such a move.

Good moods in the markets

The good mood continues this morning. A supporting factor is the better-than-expected Caixin PMI reading for China. It amounted to 50,9 points. This indicator focuses more on smaller and export-oriented producers. The positive surprise suggests that these companies benefited from the improvement in new domestic and export orders. Nevertheless, the mixed picture presented by the official and Caixin PMI signals worrying prospects for the Chinese economy.

From the weekend events, it is worth taking a look at the situation on crude oil, which is gained more than 4 percent at the opening. The Saudis pledged at an OPEC+ meeting on Sunday to make major output cuts in July. The country's energy ministry said it would fall to 9 million barrels a day in July from around 10 million in May, the largest reduction in years. Now the market is wondering if the movement on the chart will last. Let's remember that in April there was already an unexpected decision to limit supply, but it briefly pushed Brent prices up by about USD 9. Since then, prices have fallen under the pressure of concerns about the weakness of the global economy.

Saudi Arabia is an oil producer that has sufficient free production capacity and storage facilities to be able to easily reduce and increase production. Except that OPEC + decided that the previous cuts should apply until the end of 2024, earlier the arrangements indicated the end of 2023. It seems that this fundamental factor should support the price of the commodity in the long term. Brent stayed on the chart drawn layout of the "triple hole", which from a technical point of view suggests a higher probability of a rebound in the nearest future.

Source: Łukasz Zembik, OANDA TMS Brokers