Weekly Market Review — December 7 – 11, 2015
So where were you on the non-farm payrolls?
Check out where our Investors stood!
Mathew W – 39,100$ Profit
Adrian G – 22,200 Euro Profit
Pamela L – 21,450$ Profit
Robyn K – 17,00$ Profit
On the Fundamental Side:
At a highly-anticipated meeting on Thursday, the ECB’s governing council left several key interest rates unchanged and opted not to increase the pace of its €60 billion a month quantitative easing program as many analysts expected. Instead, Draghi defied market expectations by only making modest changes to the bond buying program, including a plan to extend it by six months, through to March, 2017.
Draghi backtracked by noting that the ECB could employ further stimulus measures if needed, prompting investors to pile back into the euro short positions they abandoned a session earlier. Some analysts anticipate that EUR/USD could fall into parity as early as the start of next year
U.S. Department of Labor reported that nonfarm payrolls in November increased by 211,000 on a monthly basis, above consensus estimates for gains of 190,000. It followed a robust report a month earlier when nonfarm payrolls surged by 271,000, placing a December rate hike by the Fed squarely on the table
Fed chair Janet Yellen sent further hints that the U.S. central bank will raise rates in less than two weeks with hawkish comments at two public appearances earlier this week. While testifying before the Joint Economic Committee on Capitol Hill on Thursday morning, Yellen said the economy needs to add fewer than 100,000 jobs a month to absorb the losses of those who fell out of the labor market in recent years. The labor market already appeared on solid footing before Friday’s release, averaging gains of more than 200,000 jobs a month.
The unemployment rate in November held steady at 5.0%, while average hourly earnings ticked up by 0.2%.
The euro is being dragged back down by expectations of policy divergence after better-than-expected U.S. jobs data strengthened speculation the Federal Reserve will raise interest rates next week.
“Over the next few months, the monetary policy divergence between the U.S. and much of the rest of the world will become even more apparent — and that will be priced into the dollar,” said Imre Speizer, a markets strategist at Westpac Banking Corp. in Auckland. “Euro should again weaken as it becomes clear the ECB will need to do more.”
The 211,000 increase in payrolls last month followed a 298,000 gain in October that was bigger than previously estimated, Labor Department figures showed. The median forecast called for a 200,000 advance. The jobless rate held at 5 percent. The data soothed markets, with the JPMorgan Global FX Volatility Index showing that expectations for price swings slumped 2.5 percent on Friday to the lowest level in almost four months.
Traders see a 78 percent probability that the Fed will raise its benchmark rate at its Dec. 15-16 meeting, according to futures data compiled by Bloomberg. The calculation assumes the effective fed funds rate averages 0.375 percent after the first increase.
On the Technical Side:
So, where will you be tomorrow?
Interest Rate Decisions in New Zealand, Switzerland and the United Kingdom
Almost all the major currencies showed an increase at the end of last week. The biggest increase against the US dollar showed the New Zealand dollar (+3.28%) and the Swiss franc (+ 3.20%). The Euro recorded slightly lower growth (+2.66%), the Australian dollar (+2.09%) and the British pound (+0.53%). The Canadian dollar (–0.10%) and the Japanese yen (–0.31%) both showed slight declines. The main events of last week were definitely the ECB meeting and data on the US labor market. As was expected by most market participants, the European regulator has lowered its deposit rates and extended its quantitative easing program to March 2017. However, the market was also expecting the ECB to increase the volume of the program by 15 billion Euro. Market participants became frustrated, since it didn’t happen, and began to close short positions on the Euro, which has led to a significant increase against most competitors. Data on the US labor market came out better than expected, increasing the probability of a rate hike at the next meeting. Meanwhile, market participants were focusing their attention on the pace of a rate hike. The coming week promises to be very rich in terms of Economic news. Among the main are the publication of Japan’s GDP, scheduled for 23:30 (GMT) on Monday. On Tuesday, the focus will be on the Eurozone’s GDP, which will be released at 10:00 (GMT). China will publish its Consumer Price Index on Wednesday at 01:00 (GMT), while the Reserve Bank of New Zealand announces its interest rate decision at 22:00 (GMT). Data on the Australian labor market will be published on Thursday at 00:30 (GMT). The Swiss and British Central Banks will announce their decision on interest rates at 08:30 (GMT) and 12:00 (GMT), respectively.
All major US Stock Exchanges were trading with mixed dynamics last week, though closed in the green territory: Dow +0.19%, S&P 500 +0.01%, Nasdaq +0.21%. Stock markets were calm in the first half of the week. However, they experienced sharp movements in the second half. Stock fell significantly on Wednesday against the background of Janet Yellen’s statements that the rates will most likely be raised at the next meeting. The major US Stock Indexes continued falling on Thursday amid lack of stimulus measures taken by the ECB. The Stock Markets were able to recover a little bit on Friday after the largest drop since August of this year, against the background of positive statistics on the US labor market. The report almost confirmed investors’ hopes about raising rates at its next meeting, so they turned their attention to the pace of rate hikes, which is expected to be moderate.
The major European Stock Exchanges were trading in an upward trend during the first half of the trading week upon expectations of expanding stimulus by the ECB. After the announcement of the results of the meeting, European Stock Markets were experiencing a massive sell-off. Investors were disappointed by the new package of stimulus measures. The deposit rate was lowered by 10 basis points, while the quantitative easing program was extended to March 2017. Nevertheless, investors were also expecting the expansion of volume of the QE program. This week’s trading dynamics will be influenced by data on the Eurozone’s GDP and the Bank of England’s meeting outcome.
Precious metal quotes were in an upward movement last week, increasing by about $30. Such dynamics were caused by the announcement of the results of the ECB’s meeting and the publication of data on the US labor market, which has weighed down the US currency. The US dollar was pressured by investors, who were closing their short positions on the Euro. Moreover, investors turned their attention from monetary tightening to the pace of the interest rate increase. The Fed will choose a more cautious approach and will not rush after the first rate hike so as not to cause a sharp strengthening of the dollar. Meanwhile, observers tend to think Gold may be supported by higher interest rates, as this step has already been priced in. So upon the rate hike, the market may experience series of short position closures on Gold, which may lead to a significant rebound in prices.