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Market Wrap
US non-farm payrolls (NFP) grew by a disappointing 199,000 in December, according to US Bureau of Labour statistics. There was a far lower increase in jobs in December than estimates, which had been at a consensus of 400,000. There were 53,000 new jobs in leisure and hospitality, but employment is still down 7.2% or 1.2 million from February 2020. With the Fed’s dual mandate including full employment, the path to this goal is obviously not linear and is taking some time to achieve. Pre the pandemic crisis, circa 200k new jobs was a good figure for NFP, which goes to show how expectations of a massive return to work are being created but not delivered.
According to the Bureau of Labour Statistics, the unemployment rate declined by 483,000 to 3.9% in December, falling more than anticipated. All employees on private nonfarm payrolls earned an average of $31.31 per hour, up 19 cents. These figures could be the catalyst for the sell-off as rising wages are a problem in a rising inflationary economy. Federal Reserve member Daly said after the NFP data drop, that the “price-wage spiral is not evident in data yet, but it’s worth watching for”. If wages are rising in line with inflation or possibly exceeding it, there is no problem paying higher prices. The likely outcome though is that wages fail to keep up with increasing inflation and people just refuse to pay higher prices and we have an economic slide.
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Following the NFP number the EURUSD has gained more than 50 pips which is a sizeable move within the current daily range. The euro had been trading flat to lower following this morning’s European data release.
The European Commission reported that the economic sentiment among consumers and businesses in the Eurozone declined in December.
We are seeing rising inflation across the single market as well. According to Flash estimates released by Eurostat this morning, consumer prices in the euro area increased by 5% in December 2021 over the same month in 2020. Prices increased by more than expected, reaching another record high with a consensus of 4.8%. Energy prices once again rose the most, by 26% on an annual basis, followed by food, alcohol, and tobacco at 3.2%, non-energy industrial goods at 2.9%, and services at 2.4%.
At the London close the forex heatmap is still mixed, with the euro relative strength growing along with the Canadian dollar while the US dollar sees flows going the other way. The US dollar index dropped following the NFP data as did the US bonds. The move in the US dollar may be most linked with the fall in the US 2-year notes yield which is the most affected by the Feds Fund Rate. At the next FOMC meeting expectations were for the hawkish tones around raising rates earlier to begin, but if the jobs market isn’t roaring back to full employment that may be delayed.
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I am getting the feeling that we could be in for a deeper correction based on today’s Nasdaq move post data and the chart above which includes AAPL, MSFT, GOOG, TSLA, FB, and Amazon, which is the equivalent of 45% of the market weighting of the Nasdaq. The Nasdaq is unlikely to go higher if the top six companies are going sideways to lower, and as the weekly time frame indicates a high probability of a close below the 20 EMA, next week could be a bear market for tech stocks. 15500 is a very significant level and for me the last line of support before we test the daily 200 EMA.
