Today’s US jobs report was never going to be blockbuster in terms of market impact. This is because Fed Chairman Jerome Powell had already set out the near term path of monetary policy at his testimony this week.
Well, that’s how it proved to be, even though the initial reaction suggested tapering might not be quickened after all as the headline nonfarm payrolls number disappointed with a print of 210k vs 550k expected and as wages also came in a bit lower at 0.3% vs. 0.4% eyed. However, the unemployment rate fell more than expected to 4.2% from 4.6% year-on-year previously.
Shortly after the publication of the jobs data, we saw very mild reaction in the market. In immediate response, the dollar fell slightly while stock index futures and gold gained ground. Moments later we were back at pre-NFP levels:
Source: ThinkMarkets and TradingView.com
So, where does that leave us?
Well, earlier this week the Fed Chair Powell effectively admitted the central bank’s “transitory” view of inflation was wrong and that they could wrap up bond purchases in the next few months, despite the threat of Omicron variant. The market has brought its first full rate hike expectations forward, accordingly.
As a result, we could see further gains for the dollar - especially against currencies where the central bank is more dovish, such as the euro.
Indeed, the ECB is unlikely to reduce stimulus faster than it had previously projected despite inflation surging to 4.9%. The ECB will meet on December 16 to decide whether to end its emergency bond purchases in March, as planned, and what to do thereafter. Given the recent upsurge in virus cases across the Eurozone and uncertainty over the Omicron variant, the ECB may well have to delay any decision on bond purchases for a couple of months at least. The potential for new disruptions to economic activity as a result of full or partial lockdowns means the central bank may decide to increase its bond purchases under its Asset Purchase Programmes (APP) when the Pandemic Emergency Purchasing Programme (PEPP) ends in March.
What about stocks?
Well, I am not too sure about equities as there’s still a lot of uncertainty hanging over the markets with regards to Omicron, as another week draws to a close. We may see some long side profit taking heading into the weekend. So, I reckon the risks are skewed to the downside for stocks in the short term outlook.
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