Europe
After a positive start to the first trading week of 2017, the last few days have seen European stocks largely tread water, and while trading has been fairly lacklustre, it’s still been a decent start to the year when compared to the same week a year ago.
Friday’s US employment report didn’t really add much to the overall discussion over where we go to next, even though the FTSE100 did have another stab at some new record highs, as the pound came under pressure from a firmer US dollar.
The headline jobs number from the US saw 156k new jobs added in December, a significant undershoot bearing in mind previous seasonal numbers which have usually seen significant boosts to hiring in the lead up to Christmas.
The number that did manage to shift the dial was on wages which saw annualised wage growth jump 2.9% the biggest rise since 2009. While unemployment did tick higher to 4.7% this was largely expected and the jump in wages prompted a sharp selloff in US bond markets, as markets started to price back in the prospect of tighter US monetary policy.
What the numbers didn’t do was provide a catalyst to push European stocks back above their highs for this week, as European investors chose to sit on their hands, seemingly content to consolidate the gains seen on the first trading day of this year.
Financials were the best performing sector on Friday, not surprising given the jump in yields from the US's numbers, with Lloyds (LON:LLOY), leading the gainers.
On the downside, gold miners Randgold Resources (LON:RRS) and Fresnillo (LON:FRES) slid back along with the gold price on the back of the stronger US dollar.
US
US markets opened broadly unchanged despite a rather mixed December jobs report, and have continued to struggle to make further gains. The continued failure to get close to the 20k level on the Dow has the potential to prompt a significant sell-off, particularly since continued failures is likely to prompt the opposite response as investors start to bank their gains.
The reaction to Friday's data was more noticeable in the currency and bond markets, which saw yields rebound, and the US dollar rally after Thursday’s sell-off, on the back of a better than expected wages number.
On the data front most of Friday’s data was underwhelming, with the headline jobs disappointing and the trade deficit widening to $45.2bn in December. Markets chose to focus on the wages number which was the highest in seven years.
On the company front, Toyota (NYSE:TM) shares slid back after Thursday’s tweet from President-elect Donald Trump that he would slap a tariff on the company if it decides to build new cars for import to the US from its factory in Mexico.
On the retail front Sears (NASDAQ:SHLD) continued the theme of the past week, from Macy’s (NYSE:M) and Kohl’s (NYSE:KSS) by announcing the closure of 150 stores in the face of rising losses.
The best performing sector was financials, on the back of the rebound in bond yields with Goldman Sachs (NYSE:GS) leading the risers.
FX
After a sharp selloff on Wednesday and Thursday, the US dollar rebounded sharply after US wage growth showed its biggest rise since 2009. This has seen the Japanese yen decline quite sharply as yields on US Treasuries rallied sharply. The positive US dollar dynamic was also helped by comments from Loretta Mester of the Cleveland Fed who suggested that 3 rate rises this year was her base case scenario, though she caveated her comments by suggesting that this was above the FOMC consensus mean.
The Canadian dollar outperformed on the back of a decent Canadian jobs report which showed job gains of 53.7k for December, well above the consensus of 10k.
The pound has also had a disappointing week despite much better than expected economic data across the board, along with a “mea culpa” from the Bank of England’s Chief economist Andrew Haldane that they were wrong in their assessment of the resilience of the UK economy in 2016. I’m guessing it’s too much to ask that the Governor Mark Carney would make a similar admission.
Commodities
Crude Oil prices looked set for their fourth weekly gain in a row as the OPEC production cuts start to take effect this week. With Saudi looking to cut further in February the bias does appear to have shifted towards the upside with the only so called fly in the ointment likely to be when US shale producers start to turn on the taps even further at a time when rig counts have been rising steadily since May last year.
Gold prices remained on course for their second weekly gain in succession though they have closed off their highs after this afternoons US wages data helped push the US dollar off its lows for the week.
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