US jobs report set to dominate – Gold heads lower as PBoC halt historic buying spree

• European markets weaken after cautious ECB approach.

• Gold heads lower as PBoC halt historic buying spree.

• US jobs report set to dominate.

European markets are in the red, following yesterday’s ECB meeting that can be filed under a hawkish cut. Rather predictably, the outlook from Lagarde & co overshadowed the rate cut itself, with markets having fully priced in the 25bp move. Instead, the ECB expectations that inflation will remain above target for both 2024 and 2025 highlights the potential concerns around just how long this easing phase will last. This morning saw the German economy flash red once again, with a -0.1% decline in industrial production following on from yesterday’s surprise -0.2% factory orders figure. The weakness of European manufacturing is no surprise to markets, but DAX bulls will hope that this could help sway the ECB in favour of a potential September rate cut that is currently priced as a coin-toss.

Gold prices have hit the buffers this morning, following the PBoC disclosure that they stopped their 18-month gold buying spree last month. With Chinese gold reserves remaining at 72.8 million ounces, traders are left wondering whether this could see precious metals cool for the time being. The strength of the dollar has not helped gold either today, with traders taking a cautious approach in the lead up to today’s jobs report.

Coming off the back of a set of concerning employment metrics, all eyes are on the US jobs report to gauge whether we are seeing a meaningful bout of weakness that may turn Powell’s head. Declines across the JOLTS job openings and ADP payrolls were tallied up with higher unemployment claims yesterday, helping keep a lid on the US 10-year yield despite gains in Europe. With US markets outperforming their European counterparts in the wake of yesterday’s ECB meeting, the ‘bad news is good news’ market structure likely means that equity bulls will be hoping for weaker payrolls and earnings data to help boost the prospect of a September rate cut from the Fed.