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European markets slipped back from their highs of the week, in the wake of an unexpectedly strong US labour market report for November, which saw 263k jobs added in November, and wages jumped sharply to 5.1%, although the pullback has been fairly modest in nature.
The numbers have also done little to undermine what has been a strong week for the FTSE100, which has been helped by hopes of a relaxation of Covid restrictions in China, while the DAX has broadly traded sideways from last weeks close.
The resilience of the US jobs numbers while welcome, has acted as a brake on market gains as investors price out the prospect of an imminent sharp slowdown in US rate hiking intentions, given it does little to alter the prospect of a 50bps rate move later this month from the Federal Reserve. It does however, make it less likely that we’ll see a rapid slowdown in the pace of rate hikes next year, a hare that was set racing by Fed chair Powell’s comments to the Brookings Institute earlier this week.
Having seen such a strong jobs and wages report today, the focus will now shift to next week’s PPI report, as well as the November CPI report the week after, as to whether we see 50bps in January, which appears to have become more likely as opposed to 25bps, which had started to get priced in the lead up to today’s jobs numbers.
Today’s best performers on the FTSE100 has been Primark owner Associated British Foods after being upgraded by Goldman Sachs, along with H&M, although Morgan Stanley was more cautious, on H&M. Goldman Sachs cited a weaker US dollar as being a benefit to ABF and H&M, with Morgan Stanley citing a challenging retail environment on the rest of the sector due to rising costs and weaker disposable incomes.
US
US markets opened sharply lower after wages growth rebounded strongly in November, to 5.1%, while payrolls growth only fell back modestly from October’s revised 284k, with 263k new jobs added.
The Nasdaq 100 has seen the biggest fallers as higher yields clobber the big tech sector, and the higher valued part of the market, while the S&P500 has also slipped away from its technical resistance
DoorDash shares have fallen sharply sliding to 3-week lows after being downgraded over execution concerns by RBC. Earlier this week the shares gain after the company announced it was cutting 1,250 jobs, as well as incurring an $85m restructuring charge.
FX
The US dollar rallied sharply after the November jobs report saw 263k jobs added while the October number was revised up to 284k.
Average hourly earnings also rebounded strongly, jumping to 5.1%, while October was revised up to 4.9% from 4.7%.
If the Federal Reserve weren’t concerned about wage growth before today’s report, their anxiety levels may have gone up a notch with this report. It also makes the prospect of another 50bps rate hike in January, much more probable, on top of the 50bps we are expecting to see in just under a fortnight’s time. What was slightly more concerning was a 2bps drop in the participation rate to 62.1% from 62.3%.
Despite today’s rebound in the greenback, the pound and the euro still look set to hold onto the bulk of their weekly gains, while against the Japanese yen it is just about holding on the 200 day SMA, with the Bank of Japan no doubt enormously pleased that the yen is the best performer this week against the US dollar.
Commodities
The rebound in crude oil prices this week has had two factors driving it. Firstly, there is some optimism that even though China is battling rising covid rates, authorities will be much more flexible in how they implement restrictions and lockdowns. There is also concern that OPEC+ might announce further cuts to production at their latest monthly virtual meeting over the weekend. A week ago, an output cut might have been more likely given where prices were then. Now with prices quite a bit higher and concerns about growth growing by the day it would be a reckless act indeed if OPEC+ were to do something to exacerbate a growth shock by deliberately pushing prices even higher.
Gold prices have slipped sharply away from the $1,800 an ounce level as US yields rebounded strongly in the wake of today’s strong jobs report, and the US dollar rallied off its lows of the day.
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