Markets Non-Plussed By Sour Employment Report
A sour US Labor Department non-farm payroll for December vibrated through global equity markets and gave the dollar reason to pause but the longer-term implications appeared tempered. Analysts had expected 196,000 new jobs created in the month but were rudely snapped to attention by the worst employment report in nearly three years. The economy only added 74,000 jobs in the month. November’s excellent report was revised upwards but ripples of uneasiness persisted.
By all accounts, this was a setback to the economy. Several analysts had gone as far to suggest 300,000 new jobs could be added. Blame was placed on the brutal weather that crossed the country, especially affecting the mid-West and Northeast.
Number of hours worked, a key component of the report, also shifted lower. Again, blame was placed on the inclement weather. Investors immediately wondered what impact the report would have on the Federal Reserve.
Ironically, the unemployment rate dropped to 6.7 percent, a solid 0.3 points on the data. More than 380,000 left the workforce either through retirement or because they stopped receiving unemployment benefits. This is not the type reduction in unemployment the Federal Reserve had anticipated when it set its 6.5 percent target on halting the stimulus.
The response to the disappointing news was muted, both in Washington and in equity and Forex markets. Investors seemed puzzled. Several disputed the figures and suggested an upward revision would be forthcoming in the February report. Earlier in the week, the ADP private sector payroll report had indicated significant job increase of more than 175,000.
As investor debated the upcoming action by the Fed, markets seemed to take the new in stride. After their December announcement of a $10 billion monthly reduction in bond buying, the Fed will meet again on January 28-29 presumably to discuss another tapering addition.
On Wall Street, the Dow lost 7.71 points to 16,437.05 but the S&P and Nasdaq both posted small gains. The S&P 500 gained 4.24 points to 1,842.37, a 0.6 percent gain for the week, while the Nasdaq Composite gained 18.471 to 4,174.665.
The MSCI world index also posted a 0.6 percent gain for the day, marking a 0.4 percent gain for the week.
Mixed trade data from China sent Asian markets mildly lower. China’s December exports increased 4.3 percent, less than expected while exports grew by 8.3 percent, higher than expected.
In the UK, there was concern about a possible oil field accident. British markets were flat and the pound posted gains against the dollar as oil elevated slightly.
The dollar lost ground to the GBP, yen and euro but held firm against the Canadian dollar. The dollar index fell to 80.533 (0.46 percent), marking a one-week low.
Against the yen, the dollar fell to 103.83 yen before rebounding to 104.07, off Thursday 105 level.
Mario Draghi again repeated that the ECB would accommodate the banks with lower interest rates but said no action was forthcoming to resist the deflation possibility. The euro closed at 1.3667, up 0.44 percent. The consensus is that Europe’s banks are healthier than six months ago and that the troubled southern tier is recovering. Unemployment figures would seem to dispute that but there are signs that housing and manufacturing are improving.
British sterling closed the week at $1.6480, up 0.1 percent on Friday. The fate of the UK housing market is drawing political debate about the fate of the Help to Buy Programme.
While the dollar showed some weakness on Friday, investors increased their bets on the USD last week by the largest amount in four months. The Commodity Futures Trading Commission announced that $21.1 billion was invested in the currency last week.
Tags: ADP Report, Canadian Dollar, China Exports, Commodity Futures Trading Commission, DOW, Dow JOes, Euro, Federal Reserve, Forex markets, Help To Buy, Hours worked, Mario Draghi, MSCI, NASDAQ, Non-farm payroll report, S&P 500, Unemployment Rate, usd, yen GBP