Financial Markets’ Weekly Recap, 29 Jan-3 Feb

Major US stock indexes closed lower on Friday after surprisingly strong jobs data raised concerns about the Federal Reserve’s aggressive rate hikes, while investors received a mixed batch of earnings reports from major companies.The data published by the US Bureau of Labor Statistics (BLS) revealed on Friday that Nonfarm Payrolls rose by 517,000 in January. This reading came in much higher than the market expectation of 185,000 and followed December’s increase of 260,000.

Further details of the publication revealed that the annual wage inflation, as measured by Average Hourly Earnings, came in at 4.4%, compared to analysts’ estimate of 4.9%. Additionally, the Labor Force Participation Rate improved modestly to 62.4% and the Unemployment Rate dropped to 3.4% from 3.5% in December.

The dollar extended its rally on Monday after a strong US jobs report indicated that the Federal Reserve may continue to tighten monetary policy for a while, while the yen was hit by news that Bank of Japan Deputy Governor Masayoshi Amamiya would be the next governor.

The Nikkei newspaper quoted undisclosed government and party sources as saying that Prime Minister Fumio Kishida’s administration is in the final stages of deciding on a successor to current governor Haruhiko Kuroda, along with two new deputy governors.

The Japanese yen fell to its lowest level in three weeks to 132.60 per dollar after the report.

Amamiya played a key role in formulating Kuroda’s asset purchase program in 2013 and has consistently advocated maintaining ultra-low interest rates. But he also said in July that the Bank of Japan should always think about ways out of ultra-loose monetary policy.

The dollar continued its rally on Monday. The dollar touched its highest level in four weeks against a basket of currencies, recording 103.22.

The euro fell 0.09 percent to 1.0783 dollars, while the pound sterling recorded in the last transaction 1.203 dollars, down 0.17 percent during the day, its lowest level since the sixth of January.

The Australian dollar fell 0.14 percent to $0.6912, while the New Zealand dollar fell 0.33 percent to $0.6310.

Oil

Oil prices rose in early trading on Monday, after falling nearly 8 percent last week to their lowest in more than three weeks, after worries about major economies overshadowed signs of recovery in demand in China, the world’s largest oil importer.

Brent crude futures rose 16 cents, or 0.2 percent, to $80.10 a barrel at 0022 GMT.

US West Texas Intermediate crude futures rose 15 cents, up 0.2 percent, to $73.54 a barrel.

West Texas Intermediate and Brent crude fell 3 percent on Friday after strong US jobs data raised fears that the Federal Reserve (the US central bank) would continue to raise interest rates, which in turn boosted the dollar.

Although recession fears dominated the market last week, Fatih Birol, Executive Director of the International Energy Agency, confirmed on Sunday that China’s recovery remains a major driver of oil prices.

The International Energy Agency expects half of global oil demand growth this year to come from China, where Birol said demand for jet fuel is on the rise.

He said that depending on how strong this recovery is, the Organization of the Petroleum Exporting Countries (OPEC) and its allies (OPEC +) may have to reassess their decision to cut production by two million barrels per day until 2023.

Gold

Gold prices fell to their lowest level in more than four weeks on Monday as the dollar stabilized after stronger-than-expected jobs data raised fears that the Federal Reserve would continue to raise interest rates.

There was little change in the gold price at $1,865.88 an ounce by 0045 GMT, after hitting its lowest level since January 6 earlier in the session.

US gold futures rose 0.2 percent to $1,879.40.

The dollar index rose 0.2 percent, making gold less attractive to buyers holding other currencies.

Data on Friday showed job growth in the United States accelerated sharply last month, with non-farm payrolls rising by 517,000 jobs, well above an estimate of 185,000. The unemployment rate fell to 3.4 percent, its lowest level in 53 and a half years.

As for other precious metals, the spot silver price fell 0.5 percent to $22.24 an ounce, platinum fell 0.1 percent to $973.04, and palladium fell 0.5 percent to $1,616.54.

Europe

European stocks rose on Friday, supported by gains in health care and energy stocks, and optimism about the region’s economic outlook offset concerns that interest rates in the United States will remain high for longer than expected.

The pan-European STOXX 600 index reversed early losses and closed 0.3 percent higher, at its highest level since April last year. It also posted gains for the second week in a row.

And the leading stock index on the London Stock Exchange during Friday’s trading reached an all-time high for a short period, which could represent a turning point for British assets. The index closed up 1 percent.

European stocks rose in the previous session on the hope that the global cycle of interest rate hikes is coming to an end, despite the European Central Bank maintaining its hawkish policy.

However, a report issued by the US Labor Department on Friday showing large increases in the number of jobs in January undermined these hopes, as continued strength in the labor market may mean that the Federal Reserve will keep interest rates high for a longer period.

In the Eurozone, business activity returned to growth in January, suggesting that the single European currency area’s economy may escape contraction again this quarter and that the upward trend may accelerate.

Another report also showed that producer price increases in the eurozone slowed in December on an annual basis.

Healthcare stocks topped the Stoxx 600 index gains on Friday, up 1.5 percent, supported by shares of major pharmaceutical companies such as Novo Nordisk and Roche.

Energy stocks jumped 1 percent, tracking crude oil prices as investors expected a recovery in demand from top consumer China.