US Equity Benchmarks Extend Payroll Momentum

Daily Analysis - 11/12/2017

Better US Labour Fundamentals Bolster Positive Sentiment Ahead of FOMC Decision


Echoing the print earlier in the week from payroll processor ADP, the official US Nonfarm Payroll figure managed to top estimates on Friday, contributing to a multi-session rally in key US equity indices. Though the unemployment rate remained on hold at 4.10%, the upbeat result is reassuring for market participants anticipating another rate hike from the Federal Reserve before year end.

Robust Payroll Results Give Fed the Greenlight

Following the unevenness in payroll figures for the last few months in the aftermath of hurricane season’s impact, US job creation outperformed the consensus forecast of economists, rising by 228,000 positions during November. Although below the downwardly revised 244,000 positions filled in October, the figure underscores the considerable drive in the manufacturing and construction hiring, with each sector adding 31,000 and 23,000 respectively while keeping the jobless rate firmly at 4.10%. Apart from indicating an economy that continues to gain momentum, the pace of monthly wage growth gains was positive, rising to 0.20% in November after a -0.10% contraction a month earlier. On an annualized basis, wages have risen by 2.50%, handedly outpacing price inflation. With the FOMC decision just days away, speculation is high that the board will adjust rates higher by 25 basis points. Since the weekly reopening, Dow futures have ticked modestly higher, rising to 24360.


Weak Chinese Inflation Raises Prospect of Shifting Policy Stance

Figures unveiled over the weekend showed that inflation is decelerating across the board in China as both producer and consumer price growth retreats. According to figures compiled by the National Bureau of Statistics, CPI inflation fell to 1.70% annualized pace in November from 1.90% a month earlier after printing 0.00% month over month. Producer price growth dipped significantly, falling to 5.80% from the 6.90% pace recorded for the twelve months ended in October. Clampdowns on pollution have dampened demand for raw materials, hurting factory gate inflation metrics. From the perspective of policymakers, the latest declines may give officials at the Peoples’ Bank of China the room to refrain from tightening monetary policy. However, the drive to fight pollution may also have unintended consequences for economic growth as the government works to reduce smog and other contaminants. The USDCNH pair is slightly lower ahead of European trade, trending just shy of 6.6200.


Upbeat Negotiation Outcome Means Brexit Focus Shifts to Trade

With this week’s EU Summit scheduled for Thursday, optimism heading into the week is positive subsequent to Friday’s announcement of progress on key sticking points. In a deal struck between the two parties, the UK will refrain from building a physical border between Northern Ireland and the Republic of Ireland while protecting the status of EU nationals in the UK and vice-versa. Although the UK will still be paying a so-called Brexit bill of between €40-45 billion to cover its remaining obligations, it is nevertheless well below the €75 billion sought by the EU negotiators. However, despite arriving at an agreement, the UK Parliament will have to give its blessing to the deal, creating new hurdles and setting UK Prime Minister Theresa May up for a potential defeat. Even with a modest recovery in the Pound, the optimism in equities is prevailing as the FTSE 100 climbs to 7420.


Bitcoin Futures Debut in Chicago

Cryptocurrencies reached a new milestone on Sunday with the introduction of bitcoin futures on the Chicago Board Options Exchange. Although not available for most investors, the launch of derivatives contracts will be enticing for institutional investors and fund managers formerly unable to participate in trading cryptocurrencies due to their yet unregulated status. Although volume has been light so far, the tighter risk measures imposed by the exchange for the contract means that operations have already been halted twice since trading began late on Sunday. When bitcoin futures move more than a certain amount within a pre-prescribed amount of time, it triggers halts depending on the percentage moves. However, bearing in mind the normal daily volatility, it is likely that risk parameters may need to be widened over time to account for the significant daily swings. Futures prices briefly crossed $18,000 per coin, while in the spot market, bitcoin has surged nearly 15.00% to $16,150.


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