Financial Markets’ Weekly Recap

Oil prices experienced a notable uptick of more than two percent on Friday, fueled by optimistic US data that bolstered expectations for increased demand. Despite this positive development, both Brent crude and US West Texas Intermediate (WTI) crude prices faced their seventh consecutive week of decline, marking the lengthiest series of weekly decreases in five years. The persisting concerns revolved around apprehensions of an ongoing surplus in global oil supplies.

At settlement, Brent crude futures stood at $75.84 per barrel, reflecting a robust increase of $1.79, equivalent to 2.4 percent. Simultaneously, US West Texas Intermediate crude futures reached $71.23 at settlement, marking a notable rise of $1.89 or 2.7 percent.

Throughout the week, both benchmarks collectively experienced a 3.8 percent decline, reaching their lowest levels since late June on Thursday. This downward trend underscored the prevailing sentiment among many traders, who harbor the belief that the market continues to grapple with an excess of oil supplies.

The intricate interplay between demand dynamics and supply concerns is likely to remain a focal point for oil markets in the foreseeable future, influencing price trajectories and market sentiment.

U.S. stocks rebounded, following a positive trajectory and securing weekly gains in the wake of pivotal employment data. This data underscored an amelioration in labor market conditions, fueling expectations of the Federal Reserve resorting to additional rate hikes in its ongoing battle against inflation. The potential resurgence of inflation levels and robust price increases seemed to be staved off by these promising employment figures. Despite this, investors in global financial markets started to assess the favorable shift in job and wage growth conditions, acknowledging it as a positive development.

Notably, investors in American assets, particularly those in Wall Street stocks, began to engage in speculation that the U.S. economy was on the verge of achieving the Federal Reserve’s sought-after goal. This goal entails reducing inflation without slipping into a recessionary state.

In November, the Non-Farm Payrolls (NFP) index in the United States saw a noteworthy increase of 190,000 jobs, surpassing the previous month’s gain of 150,000 jobs and exceeding market expectations set at 180,000 jobs.

Wage growth in the U.S. experienced an upswing, evident in the monthly and annual readings of the average hourly earnings index, which climbed by 0.4% and 4.00%, respectively.

The unemployment rate in the U.S. dropped to 3.7% in November, a notable improvement from the previous month’s reading of 3.9%. This dip was even lower than market expectations based on the October figures. Investors are increasingly optimistic about the U.S. economy showing signs of achieving the Federal Reserve’s objectives, steering clear of a recession while curbing inflation.

The euro fell to its lowest level in more than three weeks on Thursday as traders increased bets that the European Central Bank will begin cutting interest rates starting in March 2024, while the dollar stabilized ahead of the release of important jobs data this week.

The euro fell 0.07 percent to $1.0757, reaching its lowest level since November 14. It fell 1 percent this week and is on track to record the largest weekly decline since May.

Traders are betting that there is an approximately 85 percent chance that the European Central Bank will cut interest rates at its March meeting, bringing the cut to approximately 150 basis points by the end of next year.

François Villeroy de Gallo, a member of the European Central Bank and head of the French Central Bank, told a French newspaper in an interview published yesterday, Wednesday, that the issue of lowering interest rates may arise in 2024.

“The decline in inflation is happening faster than we thought,” he added.

The European Central Bank will set interest rates next Thursday and is certain to keep them at the current four percent, although the focus will be on the statements of those responsible for forecasting interest rates.

The dollar recovered this month after falling three percent in November, as traders increased bets that other central banks would lower interest rates.

The dollar index, which measures the value of the US currency against six competing currencies, rose by 0.038 percent to 104.17 points, slightly below its highest level in two weeks at 104.23 points, which it touched yesterday, Wednesday. The index rose 0.9 percent this week and is on track to achieve its strongest weekly performance since July.

Yesterday, Wednesday, data showed that jobs in the US private sector increased less than expected in November, in another sign that the labor market is gradually calming down.

Investors will now focus on the non-farm payrolls data that will be released on Friday to get a clearer picture of the labor market.

The Canadian dollar fell 0.10 percent to 1.36 against the US currency after the Bank of Canada kept overnight interest rates at five percent yesterday. Unlike other central banks, the door was left open for another hike.

The Japanese yen rose 0.47 percent to 146.59 against the dollar and approached its highest level in three months at 146.23 against the dollar, which it touched at the beginning of the week.