Market Wrap – Sentiment takes a big hit

Market sentiment took a bit hit this afternoon after data came in much stronger than expected from the United States, which fed into fears that the FED will hike rates by a larger than expected amount.

In terms of market reaction, the USD gained broadly with the EURUSD and the GBPUSD pairs going to fresh monthly lows on the back of the better data from the United States.

Stocks took a considerable tumble, with all the major US averages sinking lower by over one percent. Gold and precious metals were other big losers on the day as expected on increased FED rate hike fears.

Breaking down the jobs data first, private businesses in the US created 235,000 jobs in December of 2022, higher than an upwardly revised 182,000 in November and well above market forecasts of 150,000.

Service providers added 213,00 led by leisure and hospitality 123,00, professional and business services 52,000 and education and health services 42,000.

Nela Richardson, ADP chief economist said “The labour market is strong but fragmented, with hiring varying sharply by industry and establishment size. Business segments that hired aggressively in the first half of 2022 have slowed hiring and in some cases cut jobs in the last month of the year”,

Meanwhile, annual pay was up 7.3% year-over-year in December, below 7.6% in November, which could help the US consumer as inflation expands.

Breaking down the Service sector data, the S&P Global US Services PMI was revised slightly higher to 44.7 in December of 2022 from a preliminary of 44.4 but continued to point to the biggest contraction in the services sector in four months and was the second-fastest since May of 2020.

Lower business activity was commonly attributed to a further reduction in new orders, as client demand weakened due to the impact of higher interest rates and inflation on customer spending. New export orders also declined amid global economic uncertainty and high inflation in key export markets.

Meanwhile, job creation was only marginal overall as cost saving initiatives and lay-offs weighed on hiring. On the price front, input inflation was the slowest since October of 2020 as higher supplier and wage bills were partly offset by reductions in some key input prices.