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Fed Hawks, Markets Stumble, Mixed NFP


10 January 2022 Written by Lukman Otunuga  Senior Research Analyst at FXTM Lukman Otunuga

Investors marched into the new year with a renewed sense of confidence as concerns over the Omicron variant eased. European shares hit a record high in the first session after Christmas and Wall Street followed their lead, extending a solid start to 2022. We expected this to be an eventful week for global markets due to the OPEC+ output decision, FOMC meeting minutes, and key US jobs data. Equity bulls remained in the driving seat on Tuesday, elevating equities across the globe higher as markets players become hopeful over a steady economic recovery despite a surge in Covid-19 cases. In the currency markets, king dollar flexed its muscles across the G10 while gold rebounded from the $1800 psychological level. On the data front, China’s December Caixin Manufacturing PMI came in at 50.9 vs 50 returning to growth while the U.S services industry activity slowed more than expected in December. 

Let’s not forget the OPEC+ meeting on Tuesday which concluded with the cartel sticking with their planned production increase for February. OPEC expressed optimism over the global economic outlook and expected strong demand despite surging Coronavirus cases. WTI and Brent crude are both up roughly 5% year-to-date.

Before things got spicy on Wednesday evening, the ADP Employment Report revealed that private sector employment surged by 807,000 in December. This figure smashed market forecasts and was a big jump from the 505,000 witnessed in November. Even though the ADP data is a poor predictor of the key non-farm payrolls report on Friday, markets may be readying themselves for a potential upbeat number.

We also published our mid-week technical outlook focusing on trends. The monetary policy divergence between the Fed and ECB are likely to influence the EURUSD’s trajectory this year. Using technical analysis, prices remain bearish on the monthly and weekly timeframe. However, niseem to be making a move on the daily charts with 1.1370 acting as a point of interest.

US equity bulls were frightened by Fed hawks on Wednesday after the minutes from the December meeting pointed to a faster than expected hike in interest rates. Global stocks limped into Thursday’s session struggling to nurse the deep wounds inflicted by the hawkish signals from the FOMC minutes and spread of the Omicron variant. 

After all the anticipation, the US jobs report was finally released on Friday afternoon. In December, the US economy created 199,000 jobs which were far below the 400,000 expectations. Although the NFP numbers were disappointing, the US unemployment rate fell to 3.9% from 4.2% in November while hourly earnings jumped 4.7% versus the expected 4.2%. These bright spots may strengthen bets over the Federal Reserve raising interest rates. In fact, traders are currently pricing in an 86% probability of at least one rate hike by mid-March 2022.

The S&P500 extended losses following the NFP report, concluding the week 1.87% lower. Interestingly, the dollar weakened across the G10 arena while gold staged a rebound that failed to push prices back above the $1800 psychological level.

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