US Open Note – Euro remains afloat above 1.14 after impressive NFP data; oil fires up



Euro survives NFP surprise

The euro had been dancing to the ECB’s hawkish beats on Friday until the US nonfarm payroll report came to put the brakes on its dynamic rally, but the common currency managed to remain afloat.

Following a bitter contraction in ADP private employment figures, analysts believed that their forecasts for a 150k growth were too optimistic for the month of January. Yet, the government’s first monthly comprehensive employment stats of 2022 revealed that the US economy is more resilient than that, creating 467k new job positions at a time when covid infections had been marking fresh record highs. December’s print got an upside revision too.

In other components, there was a marginal increase in the unemployment rate to 4.0% from 3.9% previously.

Perhaps, some adjustments in the survey’s methodology have affected the results and limited comparison, but in the end, the solid wage growth print may be all that matters for the Fed. Average hourly earnings expanded at a faster pace of 5.7% y/y compared to 5.2% expected, confirming that labor market conditions are tight enough to force businesses to raise wages and compete for a limited pool of workers.

The steeper rise in wage growth increases the odds for inflation becoming more entrenched, and therefore justifies projections for at least five Fed rate hikes by the end of the year. Hence, the probability for a faster 50 basis point rate hike in March has almost doubled from 18% to 34%.

As for the market reaction, euro/dollar slid immediately to a low of 1.1421 in the aftermath before bouncing back into the green territory to trade at 1.1452. Dollar/yen sped up to a new 2022 high of 115.38, whereas pound/dollar remained a laggard, extending its losses close to the 1.3500 round level.

Canadian jobs data disappoint

Canada was less fortunate during January, reporting a steeper decline of 200k in employment versus a 117.5k contraction expected. The unemployment rate advanced up to 6.5%, and above the 6.2% forecast, helping dollar/loonie climb to a new weekly high of 1.2786. Still, the discouraging jobs data have not demolished the Canadian dollar when compared to other major currencies, such as the Japanese yen and the euro. Likely rising oil prices are providing a safety net to the loonie.

Oil rally picks up steam; gold in sleeping mode

Speaking about oil, crude prices are among the biggest winners today, showing no mercy to global central banks, which are in a dilemma about how they could cool inflation without harming economic recovery during the pandemic. The nonstop rally stretched to fresh seven-year highs. WTI crude jumped to $93.15, while the international benchmark Brent changed hands higher at $93.68.

The latest supply increase by OPEC+ is obviously too modest to calm inflation fears and given the fresh round of storms heading to the US and the ongoing geopolitical tensions across Ukraine’s borders, prolonged supply disruptions could keep energy prices elevated.

In metals, gold has switched into recovery mode again, inching above the $1,800/ounce level despite the surge in global bond yields. But it still has some distance to go to touch the crucial resistance territory of $1,830 – $1,840.

Stock indices falter

Although not supercharged, Amazon’s Q4 earnings release was brighter than analysts estimated and strong enough to calm those who worried that the giant online retailer would face a sharp negative reversal. Moreover, it set its Q1 annual revenue growth projections below expectations, which if met could mark the slowest growth in two decades.

Still, with the company holding robust on the bottom line and raising its Prime subscription price for the first time since 2018, though at slightly softer pace of 17% versus 20% previously, investors welcomed the results, elevating the stock back above the 3,000 round level during the early US trading hours.

The S&P 500, Nasdaq 100 and Dow jones opened mildly lower despite Amazon’s encouraging results.

Meanwhile in Europe, the ECB’s hawkish beats continued to weigh on stock markets despite the steep ascend in energy shares. The regional STOXX 600 was squeezed down by more than 1.0% during the time of writing led by bitter losses in real estate, utilities and industrial stocks. The blue-chip STOXX 50 is slightly in a worser position.

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