Daily market report January 10th 2022
- The headline US jobs increase was well below expectations at 199,000, but the overall report was stronger as unemployment declined further and wages were stronger than expected.
- There were still strong expectations that the Federal Reserve would raise interest rates in March.
- US 10-year yields retreated, but remained close to 9-month highs in choppy trading.
- Risk appetite overall remained brittle amid coronavirus uncertainty and expectations of tighter monetary policies.
- Wall Street equities edged lower with further selling in the tech sector.
- Asian equities were resilient with underlying caution over coronavirus trends.
- The dollar was initially resilient after the jobs data, but then posted net losses.
- EUR/USD posted a net advance to above 1.1350 before fading on Monday.
- Sterling maintained a firm tone with a net GBP/USD advance to near 1.3600.
- The Australian dollar recovered ground after the jobs data with tentative net gains.
- The Canadian dollar was supported by a solid jobs report.
- Oil prices were subjected to a correction amid a high degree of uncertainty over potential demand trends.
- Precious metals gained relief after the US jobs data, but struggled to sustain gains.
- Higher inflation helped underpin the Norwegian krone.
- Cryptocurrencies posted 3-month lows before a tentative recovery.
The headline Euro-zone CPI inflation rate increased to a fresh record high of 5.0% from 4.9% and above consensus forecasts of 4.7% while the core rate held at 2.6% and slightly above expectations of 2.5%. December Euro-zone industrial sentiment improved, but there was a sharp dip in services as covid restrictions were tightened.
Markets still expect that the ECB will maintain a dovish policy stance, but there will be increased pressure for the bank to tackle inflation pressures.
US non-farm payrolls increased 199,000 for December compared with consensus forecasts of 400,000, although the November estimate was revised up to 249,000 from the original estimate of 210,000. There was an increase in manufacturing jobs of 26,000 on the month while there was a 22,000 gain for construction jobs. There was a small decline in retail jobs for the month, but with an increase in jobs in the leisure and hospitality sector. Government jobs declined a further 12,000 on the month.
The unemployment rate declined to 3.9% from 4.2% and the lowest rate since February 2020 as the household survey recorded an increase in the number of employed of just over 650,000 for the month. The household data continued to suggest that supply-side issues were curbing underlying growth in payrolls.
Average earnings increased 0.6% for the month compared with market expectations of 0.4%, although the annual increase slowed to 4.7% from 5.1% as labour-force distortions eased. The wages data maintained market concerns over underlying inflation trends and the risk of wage settlements drifting higher.
Futures markets indicated that the chances of a March rate hike had increased to around 90% from 80% ahead of the data.
The dollar was little changed initially, but gradually lost ground as EUR/USD posted net gains to highs around 1.1360.
In comments on Sunday, ECB member Schnabel stated that the central bank may have to act if energy price rises are more persistent. The Euro, however, was unable to gain further support and EUR/USD edged lower to 1.1335 as the dollar resisted further selling while commodity currencies were generally mixed.
There was choppy trading in US Treasuries following the US jobs data. Yields eventually moved higher with markets focussing on the relatively strong wages component and the 10-year yield moved towards 1.80%. There was, however, also a retreat in equities and the dollar was unable to secure significant support and drifted lower against the yen. Overall, USD/JPY retreated to near 115.50 with no significant commentary on monetary policy from Fed officials during the day.
Markets will be waiting for further commentary from Fed Chair Powell who is scheduled to testify to the US Senate on Tuesday. In particular, comments and guidance on the potential for interest rate hikes will be watched closely following a hawkish interpretation of minutes from December’s meeting.
Equity markets were resilient in Asia, although there was still an important element of caution over the risk of disruption in China if coronavirus cases increase sharply.
Tokyo markets were closed for a holiday and USD/JPY recovered to the 115.80 area in early Europe with EUR/JPY around 131.25.
The UK PMI construction index declined to 54.3 for December from 55.5 previously, but slightly above market expectations of 54.0 and there was a stronger increase in new orders. Although there was further upward pressure on costs, the overall rate of inflation slowed to the lowest rate since March.
Sterling held a firm overall tone on yield grounds with increased speculation that the Bank of England would decide on another interest rate increase at the February policy meeting. GBP/USD strengthened to highs near 1.3600 while EUR/GBP edged higher to near 0.8360.
CFTC data recorded a sharp decline in short Sterling positions to near 39,000 in the latest week from over 50,000 previously, although there is still scope for a covering of shorts if the spot rate continues to make headway.
The latest surveys from Deloitte and Make UK both indicated that investment would strengthen in 2022 which helped underpin sentiment to some extent. GBP/USD held firm on Monday to trade around 1.3585 with EUR/GBP just below 0.8350 and near 22-month lows.
The franc continued to lose ground on Friday as low Swiss yields continued to undermine support. There was some respite after the Wall Street open as risk appetite dipped again. EUR/CHF secured a net advance to 1.0435 after hitting resistance closer to 1.0450 while USD/CHF retreated to 0.9185.
Markets will assess the data on sight deposits to assess whether the National Bank was intervening to weaken the Swiss currency during the latest reporting period.
Yield considerations continued to hamper the franc on Monday with EUR/CHF little changed and USD/CHF edging above the 0.9200 level.
AUD/USD + USD/CAD
The Australian dollar briefly dipped after the US jobs data, but rallied quickly and posted net gains as the US dollar retreated. There was still an element of caution, but AUD/USD strengthened to 0.7180.
The Australian currency held steady on Monday with some relief over Chinese equity-market trends, but AUD/USD was held just below the 0.7200 level.
Canadian employment increased 54,700 for December after an increase of close to 154,000 for November, but above consensus forecasts of 28,000. The unemployment rate declined to 5.9% from 6.0% previous and compared with expectations of 6.0%.
The data boosted the Canadian dollar and there was a further net boost from a weaker US dollar and USD/CAD retreated to around 1.2640.
The Canadian currency was unable to make further headway on Monday and settled just below 1.2650.
There was choppy trading in the Norwegian krone on Friday with EUR/NOK settling around 10.04.
The headline Norwegian CPI inflation rate increased to 5.3% from 5.1% and above expectations of 5.1% while the core rate increased to 1.8% from 1.3% and well above market expectations of 1.4%.
The data maintained expectations that the Norges Bank would push ahead with further interest rate increases. EUR/NOK retreated to near 10.01 with USD/NOK around 8.83.
The krona was able to secure net gains on expectations of a strong Swedish recovery this year. EUR/SEK retreated to just below 10.28 with little change on Monday while USD/SEK settled around 9.06.
Euro-zone equities were unable to make further headway on Friday with an element of profit taking after solid gains while there were net reservations over Omicron developments.
The German DAX index declined 0.65% with a 0.4% retreat for the Eurostoxx 50 index.
Major UK stocks were able to make headway on Friday with support from gains in the banking and mining sectors. The FTSE 100 index was able to secure a 0.45% gain despite a firm Sterling tone and Wall Street losses.
Wall Street equities were unable to derive support from the US jobs data. There were concerns over evidence of increased wage inflation and expectations of higher interest rates. There was further selling in the tech sector and the S&P 500 index declined 0.3%.
Asian sentiment held steady on Monday, although investor confidence remained fragile.
The Australian ASX index declined 0.1% while China’s Shanghai index advanced 0.4% and Hong Kong’s Hang Seng index traded 1.0% higher in late trading.
Oil prices lost ground on Friday with a significant element of profit taking after strong gains.
There was an element of caution over Omicron developments while markets continued to focus on underlying supply issues.
Overall, WTI settled just below $79.0 p/b and there was little change on Monday with Brent around $81.70 p/b.
Precious metals secured some respite after the US jobs data with US yields retreating from 9-month highs while the dollar lost ground.
Gold posted a net advance to above $1,795 per ounce while silver recovered to $22.40 per ounce.
Gold was unable to make further headway on Monday and silver retreated to $22.25 per ounce on concerns over higher US yields.
Cryptocurrencies briefly dipped lower after Friday’s US open, but found solid support on dips with bitcoin rebounding from lows near $40,500.
There was some relief from a weaker US dollar, although equities continued to lose ground.
There was a renewed slide on Saturday with 3-month lows near $40,500, but buying on dips again emerged with bitcoin posting a net advance to $42,500.
There was no further headway in Asia on Monday with bitcoin just below $42,000.
Ether dipped to 3-month lows just below $3,000 before a recovery to $3,200 where momentum faded once again.
Major events for the day ahead: (times in GMT)
09.30: Euro-zone Sentix index
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