Weekly Commodities Update Weekly Commodities Update Weekly Commodities Update

Market Insights Today: Hot U.S. labor market data saw equities lower on Thursday, all eyes on today’s U.S. employment report – 6 January 2023

APAC Strategy Team

Summary:  The stronger-than-expected ADP private sector employment data and an unexpected decline in initial claims in the U.S. plus hawkish comments from Fed’s George and Bostic stirred up fear of the Fed keeping rates higher for longer. U.S. stocks fell by more than 1% and the yields on the 2-year Treasury notes rose by 10bps to 4.46%. The less hawkish remarks from Fed's Bullard and mention of 2023 being a year of disinflation late in the New York session only lifted stocks briefly. Today’s focus is on the U.S. employment report and investors will scrutinize the non-farm payrolls, unemployment rate, and average hourly earnings prints closely.


What’s happening in markets?

Nasdaq 100 (NAS100.I) and S&P 500 (US500.I) fell over 1% on strong job data

Investors sold U.S. equities after seeing the strong prints from the ADP employment report and unexpected declines in both initial jobless claims. Hawkish comments from Fed’s George and Bostic added to the fear of the interest rates staying higher for longer. The less hawkish remarks from Fed’s Bullard lifted the market briefly and the intra-day rally did not hold as whispers of potential upside surprises in non-farm payrolls that are scheduled to release on Friday. Nasdaq 100 fell by 1.6% and S&P 500 slid by 1.2%.  Within the 11 sectors of the S&P 500, all but energy declined. Real estate, utilities, and information technology were the biggest losers. Energy stocks gained nearly 2% as WTI crude rallied by 1.6%. On individual stocks, Walgreens Boots Alliance (WBA:xnys) fell by 6.1%, to $35.19 after the pharmacy chain said it was facing shrinking demand for Covid-19 tests and vaccines. Conagra (CAG:xnys) gained 3.4% following the guidance of higher sales and earnings.

US Treasuries (TLT:xnas, IEF:xnas, SHY:xnas) bear-flattened as yields on the 2-year jumped 10bps on strong ADP employment data

After the release of much larger job gains in the ADP employment data and declines in both initial and continuous jobless claims, Treasuries sold off across the curve initially. Adding to the fear of more rate hikes to come was the comment from Kansas Fed President George that she has raised her forecast of terminal rate to over 5% and kept it there well into 2024. Atlanta Fed President Bostic said that “there is still much work to do” to bring inflation back down to the Fed’s 2% target. A less hawkish presentation delivered by St. Louis Fed President Bullard late in the day however triggered buying in the long end of the Treasury curve while the losses in the front end stayed. Bullard said “the policy rate is not yet in a zone that may be considered sufficiently restrictive, but it is getter closer” and added that 2023 may be “a year of disinflation”. Yields on the 2-year finished the day 10bps cheaper at 4.46% and those on the 10-year fell 4bps to 3.72%. Yields on the 30-year, however, after rising as much as to 3.87%, finished the day unchanged at 3.79%.

Hong Kong’s Hang Seng (HIF3) and China’s CSI300 (03188:xhkg)

Hang Seng Index climbed 1.3% and CSI300 surged nearly 1.9% as the Caixin China PMI Services came in stronger than expectations and China announced the much anticipated gradual reopening of the border between Hong Kong and the mainland starting from January 8, 2023. Internet platform giants Alibaba (09988:xhkg) and Meituan (03690:xhkg), China restaurant chain Haidilao (06862:xhg), beer brewers China Resources Beer (00291:xhkg) and Budweiser (01876:xhkg) were among the top gainers within the Hang Seng Index. Northbound Stock Connect flows into A-shares surged to over RMB12 billion, the highest in over a month. Among stocks traded in the mainland bourses, Baijiu (Chinese white liquor) surged in anticipation of a rebound in consumption. Other top gainers in the A-share market included electric equipment, household electronic appliances, brokerage, and beauty care stocks.

FX: the dollar gained versus G10 currencies

The Dollar Index (DXY) rose 0.9% to 105.04 as the dollar gained versus all G10 currencies on strong US labor market data released on Thursday. EUR fell 0.9% to 1.0520 versus the dollar and USDJPY rose by 0.6% to 133.40. AUD retraced 1.2% against the USD to 0.6750. Benefiting from repatriation demand ahead of the Chinese New Year and equity-related inflows, CNH managed to keep its recent gains and held its ground against the dollar at 6.8890.

Crude oil rallied 1.5% on a smaller rise in EIA inventories while natural gas plunged 10% on a smaller decline in domestic supplies

The Energy Information and Administration (EIA) reported U.S. commercial crude oil inventories rose by 1.7 million barrels, well below the 4.5 million barrel increase expected. WTI crude gained 1.5% to USD73.90. On the other hand, Natural gas futures in the U.S. fell by 10% to USD3.75 after the EIA reported domestic natural gas supplies fell be less than the market expected.

What to consider?

Strong ADP Employment data and declines in jobless claims point to a resilient U.S. labor market

The ADP employment report came in much stronger than expected with a gain of 235K jobs in the U.S. private sector employment in December versus the consensus estimate of 150K. The job gain in November was also revised up to 182K from the previously reported 127K. Service sector jobs increased by 213K, led by the leisure and hospitality industry with a job gain of 123K. Being consistent with the strength of employment growth in the ADP report, initial jobless claims fell to 204K (below the 225K expected) in the week ended Dec 31, 2022, from 223K (previously reported at 225K) the prior week. Continuous claims also fell to 1694K, below the consensus estimate of 1728K and the prior week’s 1718K (previously reported at 1710K).

Street estimates of December Non-farm payrolls at +203K, unemployment rate at 3.7%, and average hourly earnings at +0.4% M/M, +5.0% Y/Y

The Bloomberg consensus estimate of December Non-farm payrolls which is scheduled to release today is a job gain of 203K, only a moderate decline from November’s 263K despite recent headlines of layoffs at large corporations and strikes. The JOLTS job openings, ADP employment, and jobless claim data released this week are consistent with solid job growth in December. The unemployment rate is expected to stay unchanged at 3.7% and average hourly earnings are expected to grow 0.4% M/M (last: 0.6%) and 5.0% Y/Y (last: 5.1%).

Fed’s Bullard delivered a presentation titled “The Prospect for Disinflation in 2023”

St. Louis Fed President James Bullard delivered a presentation “The Prospect for Disinflation in 2023” at an event organized by the CFA Society of St. Louis. Bullard’s remarks were less hawkish than his previous comments and those made by Fed presidents George and Bostic earlier on the same day. He said, “while the policy rate is not yet in a zone that may be considered sufficiently restrictive, it is getting closer”. He also added that “the front-loaded Fed policy has helped market-based measures of inflation expectations return to relatively low levels” and “these factors may combine to make 2023 a disinflationary year” as “during 2023, actual inflation will likely follow inflation expectations to a lower level as the real economy normalizes”.

Eurozone inflation, scheduled to release today, is set to temporarily fall

December inflation has dropped in the largest Eurozone countries (Spain, France, and Germany). It is expected that the eurozone CPI to decelerate as well and fall to single digits for the first time in three months. The economist consensus expects CPI to come at 9.7 % Y/Y against 10.1 % in November. This is partly attributed to a drop in energy inflation (base effects, declining oil and gas prices, and government measures in several countries to mitigate the energy bill). Based on advanced data points, we could even have a bigger drop in headline inflation than forecasted. However, this will not imply the European Central Bank will adjust its monetary stance in the short term. Inflationary pressures remain prevalent in most Eurozone countries. There are also real fears that the fall in energy inflation is only temporary.

Amazon is laying off more than 18,000 employees

The CEO of Amazon (AMZN), Andy Jassy, announced that the company is enlarging its previous plan to lay off 10,000 employees to more than 18,000 employees. The company has about 1.5 million employees. Jassy said that the company had hired too many people during the pandemic.

Caixin China PMI Services rose to 48.0 in December

December Caixin China PMI Services climbed to 48.0 from 46.7 in November, beating the consensus estimate of 46.8 but remained in the contractionary territory. Business and new orders sub-indices improved while the new export orders sub-index failed to sustain the expansion in November and fell back into contraction in December.

China reopened its border with Hong Kong

The much-anticipated announcement of the reopening of the border between mainland China and the Hong Kong SAR finally came on Thursday and will take effect from Sunday, January 8.

First Abu Dhabi Bank explored buying Standard Charted Bank

First Abu Dhabi Bank, the largest bank in the Middle East, said it had explored a potential acquisition of Standard Chartered Bank (STAN:xlon; 02888:xhkg) but it is no longer pursuing the deal.

AIA and PICC are criticized by the Chinese regulator for inaccurate capital calculation

The China Banking and Insurance Regulatory Commission criticized the onshore units of AIA (01299:xhkg) and PICC Property & Casualty (02328:xhkg) in the mainland for failing to comply with rules in the calculation of minimum and actual capital, leading to the release of inaccurate solvency data. The share price of AIA fell 2.5% and that of PICC slid 1.1% on Thursday.

 

For a global look at markets – tune into our Podcast.

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)
Full disclaimer (https://www.home.saxo/legal/saxoselect-disclaimer/disclaimer)

Saxo Bank (Schweiz) AG
The Circle 38
CH-8058
Zürich-Flughafen
Switzerland

Contact Saxo

Select region

Switzerland
Switzerland

All trading carries risk. Losses can exceed deposits on margin products. You should consider whether you understand how our products work and whether you can afford to take the high risk of losing your money. To help you understand the risks involved we have put together a general Risk Warning series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. The KIDs can be accessed within the trading platform. Please note that the full prospectus can be obtained free of charge from Saxo Bank (Switzerland) ltd. or the issuer.

This website can be accessed worldwide however the information on the website is related to Saxo Bank (Switzerland) Ltd. All clients will directly engage with Saxo Bank (Switzerland) Ltd. and all client agreements will be entered into with Saxo Bank (Switzerland) Ltd. and thus governed by Swiss Law.

The content of this website represents marketing material and has not been notified or submitted to any supervisory authority.

If you contact Saxo Bank (Switzerland) Ltd. or visit this website, you acknowledge and agree that any data that you transmit to Saxo Bank (Switzerland) Ltd., either through this website, by telephone or by any other means of communication (e.g. e-mail), may be collected or recorded and transferred to other Saxo Bank Group companies or third parties in Switzerland or abroad and may be stored or otherwise processed by them or Saxo Bank (Switzerland) Ltd. You release Saxo Bank (Switzerland) Ltd. from its obligations under Swiss banking and securities dealer secrecies and, to the extent permitted by law, data protection laws as well as other laws and obligations to protect privacy. Saxo Bank (Switzerland) Ltd. has implemented appropriate technical and organizational measures to protect data from unauthorized processing and disclosure and applies appropriate safeguards to guarantee adequate protection of such data.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc.