Implications From the US NFP Data

The US non-farm payrolls report for December looked mixed, but it contained multiple surprises. The US added 199,000 non-farm payrolls in December, not only a drop from the 210,000 jobs added in November but also far below the 807,000 jobs recorded in the ADP private markets in December. The non-farm payrolls also missed analysts consensus estimates of 450,000 jobs. This figure may reflect the most prosperous December in the US consumer market. The manufacturing, non-manufacturing and government jobs did not increase, which was driven mainly by the spread of the Omicron variant in the US, suffocating the country’s economic growth pace or even shrinking. However, other crucial parts of the report revealed that the unemployment rate and average wages recorded satisfactory improvements in December. The unemployment rate fell for the tenth consecutive month, from 4.1% in November to 3.9%. The unemployment rate has now fallen close to the pre-pandemic levels. Furthermore, another positive highlight was the average monthly growth in wages related to income and consumer spending, which increased from 0.3% in November to 0.6% in December. The annual rate was slightly lower than the previous value but still better than expected. The data from these two sections show that the U.S. job market and wage growth are still doing great. The two metrics have now met the threshold for interest rate hikes set by the Fed chairman and other Fed officials. Many believe that investors are waiting for Wednesday and Friday to confirm the latest inflation and consumption data in the United States. The two economic data sets will provide more guidance for the US dollar. Most importantly, whether the Fed should accelerate its balance sheet reduction and the pace of interest rate hikes heading into next month.

Dollar still hovers

The U.S. dollar has been hovering around 96 recently. Analysts estimate it will keep hovering before the U.S. releases data on inflation and retail sales later this week. In response to the recent hawkish stance from the Federal Reserve and the ideal conditions in the US labor market, the latest interest rate futures indicate that the likelihood of a 0.25% rate hike in the United States in March has risen to 90%. If U.S. inflation demonstrates strong growth this week, the chances of raising interest rates sooner increase as the dollar will have the opportunity to show more robust performance. Technically, the dollar has fluctuated between 95.5 and 96.9 in the past month. If it breaks through 95.5, investors should pay attention to the next support level at 95.1. Conversely, if the dollar returns to the 96 level, it could test 96.7 or 96.9 again. However, if the 95.1 support level or the 96.9 resistance level is broken, the dollar will have a much more precise direction.