SW Weekly Market Update 2

Weekly market update 06 December – Dollar pared recent gains as Nonfarm Payrolls disappoint, BoC and RBA monetary policy in focus next week

Weekly market update 06 December – Dollar pared recent gains as Nonfarm Payrolls disappoint, BoC and RBA monetary policy in focus next week

1. The U.S. Dollar Index dipped below 96 before the week closed on Friday, as investors digested unemployment data from the nonfarm payrolls release. Only 210,000 jobs were added to the U.S. economy in November, falling below market expectations of 550,000. However, the unemployment rate fell to 4.2%, and the labor force participation rate climbed to its highest level since March 2020. This comes after Federal Reserve Chair Jerome Powell indicated that the Fed may consider cutting back on massive bond purchases at a much faster pace in its next meeting. Moving ahead, given the emergence of the new Omicron variant and the underwhelming nonfarm payrolls, the Dollar could potentially see some strength as risk-off attitudes dominate the markets in such uncertain times. U.S. stocks are currently experiencing strong sell-offs, with all major indexes seeing strong dips in the light of the evolving pandemic situation and the hawkish remarks by Federal Reserve officials. In the coming week, investors would be looking at JOLTS job openings as a leading indicator of overall employment. Importantly, CPI and Core CPI data for the month are due to be released late next week, which could give a clearer indication of inflationary pressures in the U.S. economy.

2. The Euro held steady against the greenback, following a weaker Dollar and falling bond yields. However, the currency continues to stay near its weakest level since July 2020, as the Omicron variant continues to spread fear of the resumptions of COVID-19 lockdowns. Moving forward, investors would be looking at the ZEW Economic Sentiment data to have an understanding of the market sentiment, amid such uncertainty over the evolving COVID-19 pandemic situation. On the other hand, the Sterling underperformed against the Dollar and traded at $1.33 at the end of the week. U.K. stocks also saw a decline for the second consecutive week, closing down 0.1% on Friday before the week closed. This reflects the poor market sentiment that has been gripping markets worldwide since the emergence of the Omicron variant, and could possibly continue to do so until more is known about the impact of this new variant. Moving ahead, investors are looking out for key economic indicators such as GDP and trade balance data to have a better idea of how the U.K. economy is faring.

3. Commodity currencies such as the Aussie, Kiwi, and Canadian dollar underperformed against the U.S. Dollar throughout the week as risk aversion continues to grip markets around the world. For the coming week, markets are anticipating the release of the monetary policy from the RBA and BoC as investors look towards the central banks’ reaction to the Federal Reserve’s faster pace of tapering, amid improving economic data. Canada’s GDP edged up 0.1% in September and the country is inches from full recovery in GDP, with October only about 0.5% behind pre-pandemic GDP levels. Canada’s employment also rose by 0.8% in November and was 1.0% higher than its pre-pandemic level in February 2020, while the unemployment rate fell to 6.0%, lower than market estimates of 6.6%. Elsewhere, oil rebounded and traded at around $67 a barrel while gold fluctuated around $1770 per ounce as investors digested a mixed unemployment report. Moving ahead, the bullion might face further declines on the back of a stronger Dollar and prospects of higher interest rates.