Markets buoyed by debt ceiling deal but US jobs report was always the main event

A debt ceiling fiasco has been averted late in the day and markets are ending the week on a positive note, as traders turn their attention to the US jobs report.

Rarely do you have a situation in which everyone appears to be in agreement but we’ve seen over the last few weeks that no one at any stage thought a US default was a realistic possibility. Brinkmanship in Washington is part of the theatre of the negotiation but the idea that Congress would ever intentionally allow the US to default is ridiculous.

Still, there does seem to be some sense of relief in the markets that any risks, however minuscule, have been cast aside leaving investors to focus on what really matters at this stage; inflation, interest rates, and the economy.

Will we finally see signs of weakness in the US labor market?

The US jobs report was always the main event this week and depending on the numbers, we may well see that play out in the markets. We’re hearing some positive noises from the Fed in recent days around the prospect of a pause in order to allow more time for the data to moderate and be fully analyzed but even so, another red hot jobs report today may be impossible to ignore.

For the Fed to feel confident that inflation is heading back to 2% and sustainably, we need to see some weakness in the labor market. That means much fewer new jobs for a period, more modest wage growth, and in all likelihood a slight increase in unemployment. Higher participation wouldn’t hurt either.

We’re not going to get all that today but an NFP closer to 100,000 and wage growth of 0.3% or lower may give policymakers the confidence to pause in two weeks, assuming the inflation data the day before doesn’t bring any further nasty surprises.

It could be a lively end to the week for bitcoin

It’s been an interesting week for bitcoin which started with a rally to $28,000 before slipping back to $27,000, roughly where it was sat this time last week. Any theories that it could benefit from US debt ceiling talks failing have been cast aside for now and it’s the jobs report that will likely determine how the week ends for the cryptocurrency. A move back below $26,000 could be a real blow, with that level having held when tested on a couple of occasions last month.

For a look at all of today’s economic events, check out our economic calendar:

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Craig Erlam

Craig Erlam

Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam