Strong US jobs report overshadowed by war
Today’s US jobs report underlines the continued strength in the economy as the non-farm payrolls report showed that 678,000 jobs were added in last, and that easily topped the 423,000 forecast. Not only did the headline reading beat estimates, but the previous report was revised higher to 481,000 from 467,000. The unemployment rate edged lower to 3.8%, the lowest reading since March 2020. It is clear the US economy is still rebounding, and it is not a surprise the Federal Reserve are thinking about hiking interest rates several times this year.
Following on from the January Fed meeting, the markets began to price-in five interest rate hikes from the Fed this year. Earlier this week, Fed boss, Jerome Powell, said it would be appropriate to lift rates by 0.25% this month. It seems as if the 25-basis point hike at the next meeting is a done deal, but traders will be wondering how hawkish the Fed will be considering the war in Eastern Europe.
Elevated oil prices were already a major factor in the rising inflation levels, and energy costs are rising again on account of Russia’s invasion of Ukraine. Central bankers want to tackle the rising costs of living, but the same time they don’t want to run the risk of hiking rates too aggressively and in turn slamming on the economic brakes.
The healthy jobs data is overshadowed by the ongoing conflict. Earlier today, there were reports of a fire at a nuclear energy site in Ukraine, and that sparked fears of a repeat of the Chernobyl disaster. In keeping with recent moves, eurozone stock markets are suffering greatly as the DAX is down over 3% and the CAC has lost 4%. Due to the rally in mining stocks, the FTSE 100 is only off 2.4%. Sentiment is weak in the US as the S&P 500 is down 1.5%.
A combination of the robust US jobs report, and its safe haven status has driven up the US dollar. EUR/USD traded below 1.0900 – for the first time since May 2020. The euro is under serious pressure against the Swiss franc as the violence in Ukraine is hammering sentiment in Europe. Gold is rallying in the face of a very strong US dollar, as the metal is up over 0.7% - which highlights the high demand. Brent crude traded at its highest mark in over one decade as the fear of an energy shortage looms.