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Positive US data ahead of NFP, BoC holds

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By Craig Erlam  

US stocks were off to a decent start again on Wednesday, buoyed by data that pointed to further weakness in the jobs market and additional disinflationary pressures.

There’s no getting around the fact that the data at the end of the week – US jobs report – is the one everyone is eagerly waiting for, but the releases in the interim both fill a void and help to build the case that the economy is a little softer and price pressures are subsiding.

In this case, ADP reported employment gains of 103,000 from a downwardly revised 106,000 in October.

As ever, this data should be taken with a pinch of salt when it comes to Friday’s NFP and has at times been a wildly unreliable indicator, but it still suggests employment is trending lower.

Revised data on productivity and unit labor costs also surprised positively, with the former exceeding expectations and the latter falling short. This suggests we’re seeing further disinflationary pressures building in the economy which will further enable the Fed to adopt a far less hawkish approach next week.

BoC committed to hiking

The Bank of Canada continued to remain prepared to raise rates again, despite acknowledging that inflationary pressures have eased and higher rates are weighing on the economy and demand.

Markets continue to focus on the latter, pricing in a greater than 50% chance of a rate cut in March which will be quite a sharp U-turn from the central bank.

I wonder whether others will take a similar approach next week which leaves very little time to pivot if a March cut is realistic.

Oil falls to 5-month low

Oil prices are on course for a fifth day of losses, falling to a five-month low in the process.

The price of crude had been falling for most of the day.

But the catalyst for the most recent decline ahead of the Wall Street open appears to have been the US data, perhaps the trade figures, although the break of the November lows likely accelerated the sell-off.

Gold awaiting US data

Gold prices have been volatile this week following the explosive start to trading on Monday.

They quickly fell back to test the October and early November highs, which provided solid support on this occasion.

It would appear gold traders are waiting for the main events over the next week, being US jobs on Friday, US inflation on Tuesday, and the Fed interest rate decision on Wednesday.

Bitcoin steadies

Bitcoin is trading relatively flat around $44,000 after rallying almost 20% over the last five sessions.

The rally has been extraordinary even by bitcoin standards and highlights how excited the community is by the prospect of an ETF approval.

Lower interest rate expectations have almost certainly helped, but I think the ETF is still probably the primary driver. ​

 

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.