With the Fed’s decision to increase interest rates, the NFP coming in lower than anticipated and the Omicron variant of Covid-19 rapidly roaming the globe, the markets are experiencing increased volatility.
NFP
Less jobs than expected were added in December in the U.S. The job addition was forecast at 400K, but U.S. employers only hired 199K employees for the previous month. At the same time, wages increased more than anticipated – a sign that bolsters the Fed’s decision to change its monetary policy and tighten liquidity.
Stock Markets
Markets are facing increasing volatility as investors are trying to work out how to deal with the Fed’s decision to withdraw stimulus earlier than expected. The pandemic-induced liquidity that pushed equities to record highs will now be withdrawn.
Stocks in Asia advanced today. In Hong Kong, technology shares rose. U.S. futures went higher. The S&P 500 had the worst year beginning since 2016. European futures advanced while Japan markets are closed today due to a public holiday.
Forex
The U.S. dollar went up on Monday morning in Asia. Investors believe that U.S. inflation data and the scheduled appearances of several U.S. Fed officials could strengthen the case for increasing interest rates.
After the NFP report came out on Friday at 199K – well below the 400K forecast – it had triggered a selloff of the U.S. currency. Investors are now expecting this week’s release of U.S. inflation data which include the consumer price index.
The British pound was moderately weaker against the U.S. Dollar. Investors expect that the Bank of England (BOE) could increase its interest rates following the Fed’s footsteps.
Oil
Oil advanced on Monday morning in Asia. However, the swiftly increasing omicron Covid-19 cases cause concerns over fuel demand. Losses in oil were contained by supply interruptions in Kazakhstan and Libya. Protests taking place in Kazakhstan and pipeline maintenance work in Libya caused reduction in oil production.
At the same time, the supply from OPEC+ is not enough to satisfy demand growth.
What to Watch out for this Week:
Monday
Atlanta Fed president speaks about the economic outlook
Tuesday
Kansas City & St Louis Fed Presidents talk about economy and monetary policy
Wednesday
EIA crude oil inventory report
China PPI, CPI
U.S. CPI
Thursday
Richmond, Philadelphia, Chicago Fed presidents speak about economy and monetary policy
Friday
Bank of Korea policy decision
New York Fed president’s speech