Daily Wrap Up 05 August 2022

5 Aug 2022 04:49 PM

Stellar US jobs report hits stocks, USD rallies

The strong US jobs report renewed fears about further large interest rate hikes from the Federal Reserve, which is why equity markets are lower. The US non-farm payrolls report came in at 528,000, smashing the 250,000 forecasts. Not only was it the highest headline reading in five months, but there was also a positive revision to the previous report, it was upped to 398,000, from 372,000. The unemployment rate slipped to 3.5%, the lowest reading since February 2020. Considering last week’s negative GDP report, fears about an actual recession have been circulating this week, but in light of today’s jobs numbers, it is difficult to argue the US is struggling. The downside of a robust jobs update is an increased likelihood of more sizeable rate hikes being in the pipeline. Following on from the last Fed meeting, there were whispers in the markets the Fed might be laying the groundwork for an easing of rate hikes later in the year, but now the jobless rate fell to a new two-year low, that could give them the breathing space to press ahead with an aggressive hiking policy with the aim of tackling inflation. The US 10-year yield moved back above the 2.80% mark, the rise in yields indicates that bond markets are pricing in more hikes. As a result, the S&P 500 is down 0.8%, the losses in Europe are not as pronounced as the DAX is off 0.5%.

The US dollar is the outperformer on the currency market because of the employment report. Last Thursday, it was announced the US economy entered a technical recession, which set in motion a sell-off in the greenback that lasted days. Now, the US dollar has pulled back nearly all the lost ground which underlines the big switch in sentiment. EUR/USD, GBP/USD and AUD/USD are showing large losses due to the resurgence of the US dollar.

Oil has had bumpy run in the past few days. Worries about a cooling economy led to a major fall yesterday, and the declines accelerated today as fears about even higher interest rates played on traders’ minds. It the last few hours, the energy has swung back into positive territory, but only after printing a five-month low. Gold and silver have lost their shine on account of the surging greenback. Silver, like oil, is comfortably off the lows of the session, but it is still down on the day.

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