NFP Preview – Jobs report expected to confirm economy still in a good place, Oil nears support and Gold still vulnerable

All signs seem to be pointing towards another strong non-farm payroll reading.  We probably will not see another blockbuster reading like last month’s 266,000, but a solid +100,000 gain is widely expected.  The median estimate is for the number of jobs created in December is a 160,000-job gain, with a wide range of estimates ranging as low 54,000 and high as 221,000. 

The key takeaway will likely be that the US economy is still “in a good place” as the labor market remains resilient during a record 11th year of expansion.  With much of Wall Street surging to fresh record highs, the biggest risk for stocks is if we see a surprise pickup with inflation that shift the scale for the Fed’s next move to be tightening rates.  If unit labor costs continue to rise, we could see deflationary concerns go away, and calls for tightening to grow.

The best result for US stocks could be steady wages and a low 100,000 job gain that supports the current argument that the Fed will be on hold throughout the entire year.  The bullish case for stocks is likely to remain in place regardless of the jobs reading.      

Oil

Oil prices are quickly giving up all the gains that followed the OPEC+ surprise cuts, phase-one trade deal momentum for improved demand and US-Iran tensions.  A robust nonfarm payroll report could trigger a slightly stronger dollar that could provide some additional pressure for commodities, but we should still see oil prices stabilize in short-term.  West Texas Intermediate crude should still see some support from persisting uncertainty in the Middle East, as it seems unlikely, we will continue to see positive steps with US-Iran relations. 

Gold

Gold may have seen some of its US-Iran conflicts gains erased, but the longer-term bullish case remains firmly in place despite the recent de-escalation.  It is entirely premature to think that we will continue to see progress and conciliatory tones from both the US and Iran.  Tensions may have ebbed, but they are not completely going away.  Gold is still vulnerable over the next couple weeks as continued progress with US-China trade talks point towards further global growth optimism.  Gold will regain its mojo back once the dollar breaks and that will require further optimism out of Europe. 

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