Dollar calm after disappointing November US jobs report; ISM services PMI up next
Despite comments from Fed Chair Powell regarding omicron variant risks to inflation and employment, and how this could ultimately slow the progress in the labour market and reinforce supply disruptions, the markets seem to have brushed off these underlying market threats for now, with US stock futures and the forex arena adopting a softer market mood even after today’s key US employment data.
A faster taper narrative seems to be gaining more Fed official fans and a Q3 lift off and a booster hike in Q4 remain fully priced in.
The dollar remains ahead in the forex arena, despite the disappointing employment report today. In November, 550k jobs were expected to be created, however, the non-farm employment report came in lower than half of October’s added amount of 531k, with average hourly earnings ticking slightly lower. That said, the unemployment rate fell to 4.2% from 4.6% in October and beat the forecast of 4.5%, signalling that the labour sector remains robust despite the jobs created.
Softer jobless claims last week are signalling that the employment sector is creeping closer and closer to full employment, which could aid wage figures. Moreover, the annual average hourly earnings for November came in line with October’s numbers, and this could cause a sparkle in the Fed’s eye, given it puts weight on strong wage growth, while hours worked in the week also improved.
This may give credence to a more hawkish approach from the Fed towards tapering and boost odds of 2022 Q2 lift off, which is a positive for the dollar.
The continued expansion in the US economy for the third month in a row, signalled by the October ISM manufacturing PMI is another positive driver.
The US will deliver final services PMI at 14:45 GMT and ISM services PMI and factory orders at 15:00 GMT. Stronger figures could underpin the dollar, given the NFP results failed to.
The dollar index is holding just above the 96.00 level.
On another note, European services PMI suggest economic expansion, even though some areas missed forecasts slightly. Furthermore, ECB President Lagarde toned down odds for a hike in 2022.
The euro is trading a tad over the $1.1300 vicinity and the pound remains lethargic below the $1.3300 mark, both on uncertainty related to the omicron variant and the risks it poses to economic activity.
Loonie fails to capitalise on rally in oil but powers up on employment results
The black liquid’s downward risks appear to be minor now after the omicron coronavirus variant shock, which resulted in a $10 drop. Even OPECs decision to proceed with supplying markets with 400k barrels per day has not caused WTI oil futures price to fall further. On the contrary, WTI is currently trading around the $68.00 per barrel mark, having recouped the dip towards the $63.00 level. WTI may continue to rise should omicron related uncertainty remain subdued and until a change in inventory figures takes shape moving into the winter period, which could ultimately result in OPEC tweaking their strategy in the new year.
Canadian employment today hit the numbers out of the park. The country added 153.7k jobs in November, dwarfing October’s creation of a mere 31.2k, while the unemployment rate also fell sharply to a 6.0%, beating the expectation of 6.6% and that of October at 6.7%.
The heavily correlated Canadian dollar had not moved along with the pickup in oil prices and seemed to be exhibiting some weakness, however today’s employment data has given the loonie a boost. As a result, the USDCAD pair plunged around 90 pips to C$1.2745.
While the BoC has kept its rate hike expectations unchanged, changes in oil prices linked to uncertainty around the omicron variant could warrant some caution from the central bank. However, with today’s employment figures, the Canadian economy appears to be robust as ever.
Later, the US treasury’s current report is due.
