Equities stable, dollar slightly higher on Monday
10 January 2022
US equity indices tried to recover from last week's selling, with futures moving somewhat higher on Monday.
However, judging from the continuous spike in US yields, any rallies will likely be short-lived. The 10-year US yield rose above 1.8% today for the first time since January 2020, while the 2-year yield stalled near 0.9%.
Traders will focus on this week's US inflation data. The CPI index released on Wednesday is expected to show headline CPI breaking above 7% year-on-year, approaching a four-decade high, while the PPI index the following day will likely show another increase too.
This year, three rate hikes are now priced in, with the lift-off anticipated in March. However, the fourth rate hike is slowly pricing in, with the rate markets now predicting a 50% odds of that happening.
Not much is going on in the FX market as the EURUSD pair has remained near 1.13 since Mid November. However, the GBPUSD pair strengthens, pushing to two-month highs above 1.36. The USDJPY pair seems to be topping below 116, not following yields higher.
On Friday, the Bureau of Labor Statistics reported that only 199,000 jobs were added in the US in December, a huge miss to expectations of 400,000 and the lowest number since December 2020. On the other hand, the November payrolls data was revised higher, rising 39,000 from 210,000 to 249,000. Still, the unemployment rate improved markedly, falling to 3.9% from 4.2% and below the estimate of 4.1%.
At the same time, labor force participation remained at 1.9%. Looking at wage growth, average hourly earnings rose 4.7%, which while down from the upward revised 5.1%, was well above the 4.2% expected. The dollar fell, stocks fell, and bonds fell after the data, while precious metals advanced slightly.