Favourable market conditions helped the euro achieve gains despite a minor blip caused by US non-farm payrolls data on 2 December. Meanwhile, the encouraging employment numbers helped the 3 major US indices — the Dow Jones Industrial Average, Nasdaq, and S&P 500 — make gains two weeks in a row for the first time in 3 months.
Following the better-than-expected US non-farm payroll (NFP) data on Friday, 2 December, the euro slipped below $1.05 briefly before rising again. Despite its brief fall, much is moving in favour of the euro, including external factors such as China’s lifting of Covid-19 restrictions, a dovish US Federal Reserve chairman Jerome Powell, cheaper gas prices, and declining inflation in the United States. Any flip in the tide will put pressure on the currency.
The GBP/USD pair extended its four-week winning run amid the ongoing US dollar weakening and a risk-on market environment i.e. a market where stocks are outperforming bonds. The monetary policy difference between the US Federal Reserve and the Bank of England (BoE) has reduced slightly, fuelling the rise of pound sterling.
On the reports front, the US services data from the Institute of Supply Management (ISM) is expected this week. Since the US economy is largely a services economy, this statistic is essential to determining the country’s economic health. As inflation has shown signs of decline, the Producer Price Index (PPI) report, which is due on 9 December, will also be important.
As there is little UK economic data to boost the pound, traders will look to the meeting of the Bank of England’s monetary policy committee (MPC) on 15 December as the next possible catalyst for the currency’s movements.
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The US dollar depreciated which resulted in gold rising about 2% this week. The demand for gold improved over renewed confidence about China’s move away from its zero-Covid policy.
Following the US Bureau of Labor Statistics (BLS) report that non-farm payrolls increased by 263,000 in November — which exceeded the market’s forecast of 200,000 —- gold gave up some of its weekly gains. Furthermore, the BLS reported a yearly wage inflation increase of 5.1%.
China’s ease of Covid restriction also saw oil arrest its three-week fall. However, some of its gains on Friday were muted as the markets awaited the announcement of the Organization of the Petroleum Exporting Countries’ (OPEC+) January output cuts.
Another factor that contributed to the drop in oil prices on Friday was the news that the European Union had agreed to cap Russian oil exports at $60 per barrel as a consequence of the war in Ukraine. Currently, Russia sells most of its oil at a price higher than the cap. The measure’s primary objective is to keep Russian oil flowing to the global markets.
This was a relatively quiet week for major cryptocurrencies, with prices remaining range-bound, even though the effect of the implosion at FTX — a leading cryptocurrency exchange — continues to impact the market. The global crypto market capitalisation stands at USD 870 billion at the time of writing.
The wider crypto market surged after the US Federal Reserve chairman Powell hinted at less aggressive interest rate hikes in the future (the Fed has raised the rate by 75 basis points four consecutive times). Bitcoin, the world’s largest cryptocurrency by market cap, is currently trading at USD 17,131.40. The currency rose above the USD 17,000 mark on Wednesday as traders reacted to the latest US consumer confidence report.
Meanwhile, Ethereum, the second largest digital asset, is currently trading at USD 1,281.41 at the time of writing.
The effects of the fiasco at FTX continue to cast a shadow on the digital currency ecosystem as cryptocurrency firm BlockFi has filed for Chapter 11 bankruptcy protection. BlockFi, which allowed users to earn yield for depositing digital currencies on their platform, first halted withdrawals on the same day that FTX filed for bankruptcy. BlockFi had significant exposure to FTX and associated entities.
Meanwhile in Europe, the Italian government in its latest budget published on 1 December intends to impose a 26% tax on cryptocurrency trading profits exceeding EUR 2,000 per transaction.
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US stock markets
|Name of the index||Friday’s close||*Net change||*Net change (%)|
|Dow Jones Industrial Avg (Wall Street 30)||34,429.88||82.85||0.24%|
|Nasdaq (US Tech 100)||11,994.26||238.23||2.03%|
|S&P 500 (US 500)||4,071.70||45.58||1.13%|
*Net change and net change (%) are based on the weekly closing price change from Friday to Friday.
The better-than-expected employment report came to the rescue of the US stock market as major stock indices made up for the losses incurred earlier in the week. Friday’s close marked the first time the 3 major indices notched back-to-back weekly gains since October.
According to the BLS report, the average hourly earnings came in higher by 0.6% compared to last month and the unemployment rate stayed put at 3.7%. The favourable data has caused traders to reassess expectations about when the US central bank will stop its interest rate hiking spree.
The Nasdaq posted the largest weekly gain at just over 2%. The S&P 500 was up by 1.1%, and the Dow Jones Industrial Average ticked up by 0.2%.
The markets will look at the outcome of the US Fed’s last meeting of 2022 — which is scheduled for 14 December — with the expectation of a lower interest rate hike of 50 bps. The final set of earnings reports are set to be released this week.
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