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Andreas Zanin
Analysis, Market Analysis | January 5, 2024

JASPER’S MARKET SQUAWK 05-01-2024

Going Into NFP Less Dovish

US indices declined for the 4th consecutive session in 2024 as US companies ramped up hiring and jobless claims came in below estimates. However, the greenback met resistance as the 10-year Treasury yield hit a stumbling block at 4%.

Chart: USDJPY

Key Factors for Today

  • US Labor Market Shows Strength Ahead of Non-Farm Payrolls
  • German Inflation Adds Concerns, ECB Easing Expectations in Question
  • UK PMI and Consumer Data Show Signs of Growth Amidst Challenges
  • WTI Oil Impacted by Large EIA Inventory Build and Weakening Demand

US Labour Market Data Weigh on Cut Expectations

The ADP showed that companies ramped up hiring to 164K in December, driven by gains in the services sector. The PMI confirmed that the US services sector expanded, but growth was marginal from 51.3 expected to 51.4. However, weekly jobless claims fell to 202K vs 216K for the week ending December 30, also pointing to labour market strength. While there are signs of wage growth cooling, the market is not yet in a downturn, at least until today’s Non-farm proves otherwise. Traders reduced their bets of a March Fed rate cut to 65% from 70% before, but the dollar closed flat as the 10-year hit a hurdle at 4%. However, USDJPY rose 0.92% for a third 3-day winning streak and could head towards 145.70 so long as it trades above 144.60.

German Inflation Casts Doubt on Early ECB Easing

Inflation rose 3.8% across German states and is expected to increase nationally and in the eurozone, casting doubts on expectations of ECB March cuts.​ Both German and French inflation rose due to rising energy prices, with the former attributed partially to the phaseout of subsidies and the latter to services costs. Meanwhile, despite inching to 48.8, business activity contracted again in December, suggesting the bloc was in a recession. EURUSD appears supported by the $1.09 support it bounced off on Wednesday, but gains remain shy of $1.10 with $1.0973 as resistance.

UK PMI and Consumer Data Offer Glimpse of Hope

The UK’s final services PMI rose to 53.4 in December from 52.7 initially, showing stronger growth and a glimpse of hope that the UK will avoid recession. While many firms cited challenging business conditions due to the stagnating UK economy, they increased their prices in response to higher wages. Separately, net borrowing by British consumers reached a nearly 7-year high. Despite spiking to $1.2731, cable recoiled all the way back to $1.2682 for a marginal gain, exposing $1.2638.

WTI Ultimately Slips Following Large EIA Build

The EIA reported that crude oil inventories fell by 5.5 million barrels for the week ending December 29. However, gasoline inventories rose by 10.9 million barrels, and middle distillate inventories increased by 10.1 million barrels for the same week. The large build in fuel inventories outweighed the crude oil draw and early support from MidEast supply risks, but ultimately, WTI closed 0.9% lower, settling at $72.35 per barrel amid weakening fuel demand. The fat doji candlestick pattern has support at $71.10 and resistance at $74.

On The Docket

  • German Retail Sales
  • Halifax House Price Index
  • UK S&P Global Construction PMI
  • EA Inflation Rate
  • CA Employment Change
  • Non-Farm Payrolls
  • Ivey PMI
  • ISM Services PMI
  • Fed Barkin Speech

FX 1-Day Relative Performance (USD)

  • Aussie and Kiwi down by 0.21% each
  • Euro 0.17% in red, Pound 0.10% down
  • Loonie 0.14% down, Franc at -0.17%
  • Japanese yen 0.45% in the red zone
  • Gold 0.1% down while Silver 0.08% up
  • WTI 0.73% up, Brent follows at 0.54%
  • Natural gas a tad lower at -0.11%
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