By Craig Erlam
The year got off to a promising start last week, buoyed by a goldilocks jobs report that left investors in a good mood going into another interesting period.
Last week’s jobs report ticked every box. Jobs growth was good, but not too much, participation improved, wage growth moderated and revisions to the November data eradicated any fears that the report initially triggered. It couldn’t have gone much better.
While it was as good as anyone could have realistically hoped for, Fed policymakers included, one report – even with revisions – doesn’t define the trend and more evidence will be required to convince the central bank that it’s job is done. Although I imagine they’ll feel a lot better than they did last month.
The inflation report on Thursday could provide even more comfort for policymakers that not only are rate hikes working in easing price pressures, but potentially without a heavy economic cost.
That’s exactly what they hoped for when they embarked on the tightening cycle last year, even if it seemed unlikely as inflation rose to extraordinary levels.
Another large decline this week may not stop policymakers from hiking again next month, but it could contribute to it being one of, if not the last, in the cycle. That could give risk appetite a big boost, continuing the promising start to the year.
Oil drifting higher
Oil prices are moving higher at the start of the week, up more than 3%, buoyed by the prospect of a strong Chinese rebound this year. The country issued fresh import quotas that highlighted its growth ambitions for the year which should be supportive of prices.
At the same time, the US opted to delay its SPR purchases after indicating it didn’t receive any acceptable offers. This will remain another bullish feature of the markets this year, especially when prices slip back towards $70 where the Biden administration has indicated it would be a buyer.
Gold buoyed by jobs report
Gold continued its strong start to the year on Friday following the jobs report, with lower yields and a weaker dollar providing a massive boost.
No doubt the Fed will try to spoil the party as markets continue to move towards pricing a lower terminal rate and the prospect of cuts later this year, but the environment is looking quite positive for the yellow metal.
Small relief for bitcoin
A weaker dollar and a better risk environment are bringing cryptos some relief, with bitcoin breaking above $17,000 to trade at its highest level in more than three weeks.
It will take a lot more than that to lift the crypto considerably off its lows, but this is a welcome start.
Craig Erlam is Senior Market Analyst, UK & EMEA at OANDA
Opinions are the author’s, not necessarily that of OANDA Global Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. Losses can exceed investments.