S&P Retreats, Gold Climbs, and Yen Gains as Traders Eye Nonfarm Payroll Data | Daily Market Analysis

Key events:

• USA - Average Hourly Earnings (MoM) (Nov)
• USA - Nonfarm Payrolls (Nov)
• USA - Unemployment Rate (Nov)

The S&P 500 faced a setback on Thursday, snapping its three-day streak of record highs as investors processed earnings results and labor market data, all in anticipation of the critical nonfarm payrolls report set for release on Friday.

The Dow Jones Industrial Average slipped by 248 points, or 0.6%, while the S&P 500 edged down by 0.2%. The NASDAQ Composite also declined by 0.2%, reflecting cautious market sentiment as participants braced for new economic insights.

Gold regained some momentum during the Asian trading session on Friday, recovering from a one-and-a-half-week low to climb above $2,640. However, significant gains for the non-yielding asset appear limited as traders await the NFP report, which is expected to shed light on the Federal Reserve's monetary policy trajectory. Despite the rebound, gold remains poised for its second consecutive week of losses, as mixed economic cues continue to shape sentiment.

The upcoming NFP data is pivotal in shaping expectations for the Federal Reserve’s December meeting, where bets are leaning toward cautious rate cuts. While the prospect of inflationary policies under the incoming US administration lends some support to gold, hawkish commentary from Federal Reserve Chair Jerome Powell has kept the dollar in focus. Geopolitical tensions, including the ongoing Russia-Ukraine conflict and unrest in the Middle East, further bolster gold’s appeal as a safe-haven asset, creating a delicate balance for market participants.

The Australian Dollar edged lower on Friday following underwhelming economic data, which heightened expectations of a dovish pivot from the Reserve Bank of Australia in its next policy meeting. Australia’s GDP growth for Q3 came in at 0.3% quarter-over-quarter, falling short of the 0.4% consensus estimate and signaling a potential slowdown. A Reuters poll of economists indicated that while the RBA is expected to keep rates steady at 4.35% at its next meeting, a rate cut to 4.10% could be on the table by Q2 2025.

The Japanese Yen extended its gains during the Asian session on Friday, supported by the Bank of Japan's increasingly hawkish stance. With the BoJ signaling potential rate hikes, the yen gained ground against the US dollar, which remains under pressure from declining Treasury yields and heightened geopolitical risks. Trade tensions and the broader risk-off sentiment provided additional tailwinds for the yen, underscoring its traditional role as a safe-haven currency.

The NZD/USD pair came under renewed selling pressure on Friday, reversing part of its modest recovery from the previous session. As traders await the NFP data for fresh clues on the Federal Reserve’s policy direction, the New Zealand dollar remains on the defensive. The Reserve Bank of New Zealand has maintained a dovish outlook, with market participants pricing in a 68% likelihood of a 25-basis-point rate cut in early 2025.

Technically, the NZD/USD appears to be in a bearish consolidation phase, with momentum indicators signaling further downside risks. Any recovery attempts are likely to face resistance, providing selling opportunities for market participants.

US labor market data released Thursday painted a mixed picture. Initial jobless claims for the week ending November 29 rose to a six-week high of 224,000, exceeding the expected 215,000. Similarly, Challenger job cuts increased to 57,727 in November, reflecting a potential softening in labor demand. These mid-tier data points, however, pale in comparison to the highly anticipated NFP report. Expectations are for a rebound to 200,000 jobs added in November, following October’s disappointing 12,000 due to temporary disruptions from hurricanes and strikes.

With the NFP report on the horizon, market participants remain cautious. The outcome will likely influence the Federal Reserve’s December decision, impacting equities, the dollar, and commodity prices alike. While geopolitical risks and mixed economic data add to the uncertainty, the interplay between inflation expectations and central bank policies remains a critical driver of market sentiment.