Volatility levels on Friday significantly increased after releasing the US employment figures for December and the ISM Purchasing Managers’ Index. The latest US employment figures are below:
- NFP read 223,000 vs 200,000 expected
- Unemployment Rate read 3.5% vs 3.7% expected
- Average Hourly Earnings read 0.3% vs 0.4% expected.
The NFP release did not spark the typical price reaction from the Dollar but this does have a clear explanation. The employment sector seems to have lost its importance in relation to the US monetary policy (interest rates).
On Friday, the US Dollar Index declined from 105.50 to 103.67, which continues to decline this morning. However, economists believe the Chairmen of the Federal Reserve, during tomorrow’s speech, may look to calm markets. If Mr. Powell does take this stance, the Dollar may find some support.
NFP Loses its Importance
Currently, investors are confident that the Fed will hike 1-2 more months before holding interest rates. Interest Rates, according to investors, will increase by 1% and this has already been priced into the market. This is understandable considering the policy is already in the restriction territory, inflation has declined by 2% and stronger hikes can significantly damage the economy. Therefore, unless something extreme happens in the employment sector, it is not likely to affect the Federal Reserve’s policy.
Stocks React Positively to NFP
Investors did not take the latest employment figures into consideration for the future monetary policy, but they were useful for US stocks. The employment figures were not strong enough to indicate a more hawkish Fed but they did indicate that the employment market remains strong, and stable and shows no signs of a crisis. Consumer demand and investor confidence are likely to remain high based on strong employment figures.
In general, the employment figures supported the stock market, as did the weakening Dollar and the reopening of China. The reopening of China is positive for the global economy, not only the States. The equities market also was supported by Friday’s ISM Services Purchasing Managers’ Index which declined by 56.5 to 49.6. This is much lower than expected and the lowest since June 2020.
A figure below 50.0 is known to indicate economic retraction and further supports a potential end to rate hikes in February or March. Currently, most economists believe the FOMC will stop hikes in March.
US stocks open on a bullish market gap, but European stocks decline at the beginning of the European opening. Traders should note, the earning season is likely to influence the market throughout the month.
Crude Oil
The price of Crude Oil significantly increased during this morning’s Asian Session. The price of crude oil has mainly been supported by China's move to reopen its borders and allow visitors to enter the country without quarantine. Experts see this as an indication that China will look to end its zero-COVID policy. This is positive for the economy and demand for Crude Oil. China is the largest importer of Crude Oil.
During this morning’s Asian Session, the price has increased by almost 2.5% and has crossed the $75 psychological level. The $75 per barrel has previously acted as a resistance level and the asset has managed to cross without any major backlash. Indicators such as Moving Averages and the Stochastic Oscillator also have provided bullish indications on most timeframes.
The asset has also been supported by the devaluation of the US Dollar which is known to be correlated. In addition to this, the Chinese government has introduced some minor fiscal stimulus plans which are expected to support economic growth and stability.
Summary:
- The US Dollar reacts negatively to Friday’s employment figures and PMI report, but there is a clear explanation.
- The stock market positively reacts to a weaker Dollar and strong economic data.
- Investors' sentiment remains high as we approach the start of the latest earnings season.
- Crude oil is supported by the opening of China’s borders and a weaker Dollar.
