Will the dollar strength continue and allow the dollar bulls to remain in control? Are equities set for gains all the way towards the inauguration of Donald Trump on 20th January? We look into the key factors that traders and investors need to consider for their positions this week. What is the outlook for major forex, equities, commodities and bond markets?
After a mixed start to the year, will the dollar get another boost from the Payrolls report? Friday’s Employment Situation report shows that the labor market is tightening in the US. The key takeaways were that the headline payrolls came in marginally lower than expected and means that for the year the US added an average of 180,000 jobs per month. This may be the lowest average since 2011, however it also reflects that employers are beginning to struggle to find the relevant candidates to fill positions. The unemployment rate seems to be stabilising now between 4.6% and 5.0%, whilst it is also interesting that the U6 underemployment figure continues to drop (to 9.2%) whilst the laborforce participation rate is labor market conditions are looking to be consistent with an average of 62.8% for the past six months. The big positive for the hawks though was the pick up in average hourly earnings by +0.4% for the month and to +2.9% for the year. A tightening labor market should push wage growth higher which will filter through into inflation. This helps the arguments for tightening monetary policy. The dollar has been weaker due in part to the strengthening of the Chinese yuan but also a bit of caution creeping in over Trump’s policies. It looks as though any dollar weakness will be short lived though as a the market continues to see the Fed as the only hawks in town. Recent rallies for the euro, yen and gold on the weaker dollar should only be near term.