Financial market research and analysis

LCG Market Rundown

First trading week of 2017 comes and goes

The biggest data point in any economist’s monthly calendar, the US unemployment report, was a mixed bag so stocks in Europe finished the first week of 2017 with little fanfare. Major equity benchmarks barely budged from the previous day’s closing levels.

Gains in shares of BAE Systems as well as REITs and banking stocks were offset by losses in mining company shares as metal prices dropped, leaving the FTSE 100 little changed.

The first week of trading in 2017 has come and gone and it’s not been without its interesting price moves. The Chinese currency unwound two months of losses in two days, the US dollar touched fresh 14 year highs and the FTSE 100 and Nasdaq hit new all-time closing highs.

Stock markets remain enamoured by the growth potential of the US economy and potential corporate earnings boost from lower taxes and lighter-touch regulation under President Trump. Most major indices traded in tight ranges near 2016 and in some cases record highs in the first week of 2017.

At these elevated levels any exogenous shock can cause a big pullback in stock markets but so far there is no evidence of a trend reversal.

Another Goldilocks non-farm payrolls

It was another goldilocks non-farm payrolls report; jobs growth was a little colder but wage growth a bit hotter. The US economy created 156k jobs in December, fewer than the 178k consensus expectations whilst the unemployment rate rose to 4.7%. Average earnings grew by 0.4% m/m, above the 0.3% expected and a welcome change from the shock decline in November.

The US dollar temporarily lost ground on the weaker headline jobs number before resuming a path of strength that began during Asia trading hours. Other major currencies took their cue from the dollar. The British pound pulled back from a two-week high with GBP/USD slipping back below 1.24.

The December payrolls report hasn’t cast any major doubts over the chance of three rate hikes in the US this year. At the same time it probably hasn’t done enough to prevent the inevitable pullback in an over-extended US dollar which appears to have begun this week.

US equity index futures reacted positively to the US labour market data but cash indices opened lower. The Dow Jones above 20,000 may have to wait until next week. Even if the data had deviated materially with expectations, it’s not clear markets would have reacted with any severity. The outlook for the US economy is clouded by whether or not Donald Trump can push through is tax and spending plans.

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