Financial Markets’ Weekly Recap

After a very busy week, several economic data releases are expected to weigh on the performance of multiple assets and most prominently, the US Dollar Index with the beginning of the new trading week.

Oil’s Performance

WTI crude dropped to $80.70, a decrease of more than 2%. Soft labour market data was released by the United States. Middle East tensions are reducing, which will help the price drop. The US economy, which consumes the most oil, is the primary cause of the steep losses in US crude oil at the end of the week, which have been caused by the release of weak labour and economic activity data.

Furthermore, as the tensions in the Middle East decrease, markets are optimistic that there won’t be any disruptions to supply or demand that will further exacerbate the downward trends.

US Dollar’s Performance

The US Dollar Index, which measures the performance of major currencies against a basket of major rival currencies, stopped at the 105.00 mark following the US dollar’s decline on the key US employment data issued on Friday. The labour market seems to be moving in the Fed’s preferred direction.

The dollar index fell to 105.00 points compared to the last daily close, which recorded 106.12 points. The index rose to its highest level in the last trading session last week at 106.22 points, compared to the lowest level, which recorded 104.99 points.

While US stocks continued to surge since the beginning of daily trading on Friday, after the US NFP data that missed market estimates. The Dow Jones rose to 34,068 points after adding about 225 points, or 0.7%, with the Standard & Poor’s 500 rising to 4,358 points after gaining about 40 points, or 1.00%. The Nasdaq heavy technology industry index also rose to 13,456 points after adding about 160 points, or 1.3%.

Likewise, gold futures rose to $1,992 per ounce, compared to the close recorded in the last trading session at $1,985 per ounce. Precious metal contracts fell to their lowest level in the last session of this week’s trading at $1,983, compared to the highest level of $2,004 per ounce.

Disappointing Employment Data

The Non-Farm payrolls data in the United States indicated that the US economy added 150,000 jobs last October, compared to the previous reading, which recorded an increase of 297,000 jobs, which came below market expectations, 180,000 jobs.

US wage growth rose last October by less than the increase recorded in the previous month, which was reflected in the readings of the average hourly earnings index, indicating a monthly increase of 0.2% less than the previous reading and expectations, compared to the previous month’s reading and expectations, which indicated a rise of 0.3%.

FOMC Decision

The Federal Open Market Committee decided to keep the interest rate at the same current levels – 5.25% – 5.5% – with no change, despite leaving the door open for further rate hikes at the next December meeting, according to statements made by Federal Chairman Jerome Powell at the press conference following the announcement of monetary policy decisions.

The interest rate statement and Powell’s comments also indicated that the US economy has shown remarkable strength, with labour market conditions continuing to improve despite the quantitative tightening carried out by the central bank over more than a year.

Powell’s messages were somewhat confusing, as he stated that the door is still open to hiking interest rates in the coming months. But at the same time, Powell focused on the fact that the US economy has recently shown surprising progress, in addition to addressing the tightening that dominates the financial conditions in the country and which companies, business institutions, and families alike are suffering from.

Talking about these two matters involved a lot of contradiction, as the recovery of the economy strongly indicates the need for the central bank to resort to further hiking interest in the upcoming months due to the possible increase in demand that would in turn lead to a further increase in inflation.

On the other hand, there was an indication of the financial tightening that is controlling the economy, which would prompt the central bank to stop hiking interest rates to relieve pressure on the economy. Accordingly, the US dollar concluded Wednesday’s trading against most major currencies in a bearish direction after the Federal Reserve issued a decision to stabilize interest rates at the end of the current November meeting with an update to economic estimates.

The US dollar fell after investors became convinced that the Federal Reserve – following the end of its two-day meeting – had finished the current quantitative tightening cycle and that the central bank might stop hiking interest rates until at least the end of this year.

British Interest Policy Decision and Sterling

The Bank of England held its benchmark interest rate at a 15-year high of 5.25% for the second time in a row during its November meeting, as policymakers assess recent signs of a slowing economy in the UK, while at the same time grappling with the continuing challenge of stubbornly high inflation. The Monetary Policy Committee voted six to three in favor of keeping rates unchanged, with three members calling for a 25-basis point increase.

The British pound rose slightly to $1.22 as traders are still digesting the latest monetary policy decision from the Bank of England. Following the decision, the British pound rose against all currencies, with the EUR/GBP pair trimming its gains and falling from 0.8725 to 0.8707. However, the pair is still in the positive zone for today and above the 0.8700 level.

Bank of Japan

The Bank of Japan (BoJ) kept its key short-term interest rate unchanged at -0.1% and the 10-year bond yield rate at around 0% at its October meeting, as generally expected. In its quarterly outlook report, the Bank of Japan revised inflation expectations for fiscal years 2023 and 2024 to 2.8% from 1.3% and 1.2% respectively, exceeding the set target of 2%. For fiscal year 2025, the CPI is expected to decline to 1.7%, as the impact of high oil prices and higher import prices in the past fades.

Euro’s Performance

With all this considered, the Federal Reserve’s decision to hold rates last Wednesday was justified because market participants appear to believe that there is no longer a need for rate increases. Despite Jerome Powell, the Fed’s chair, making hawkish comments. As a result, the US bond yield curve is declining, Wall Street is rising, and the value of the US dollar is declining.

Data-wise, the Eurozone economic calendar indicated that the bloc’s business activity is slowing down in the face of high inflation, which rekindled the stagflationary situation. Money market futures therefore predict that the ECB has completed its tightening cycle, which would probably weaken the Euro, but the EUR/USD pair is supported by widespread weakness in the US Dollar.

The 150K weaker US labour market and nonfarm payrolls data that fell short of the 180K estimates, on Friday, does much to refuel a significant rally in the EUR/USD pair’s performance. With hiring slowing down and unemployment rising, there is growing speculation about Fed rate cuts in H2 2024.

Notwithstanding the European Union’s own economic downturn, the Euro gains from widespread US dollar’s weakness and a decrease in rate hike bets. During Friday’s North American session, EUR/USD pair rose as US data showed a looser US jobs market and nonfarm payrolls fell short of forecasts.

As a result, traders downplayed the likelihood of another rate hike by the Fed and instead projected reductions for the second half of 2019, which would be negative for the US dollar (USD). The major gains 1% and trades at 1.0726.

What to watch in the new trading week

In the United States, the week will be marked by speeches by several Federal Reserve officials, the release of the University of Michigan Consumer Confidence Index, and foreign trade data.

Earnings season will also continue, with reports from notable companies such as Berkshire Hathaway, Gilead Sciences, Uber, and Walt Disney.