US Open – Huge NFP Beat wraps up a great week for the President, Oil can’t shake demand woes, Gold rally pauses, German recession fears, Loonie slides

The US economy appears to be clicking on all cylinders.  After four days of strong gains on Wall Street, today’s jobs report and trade optimism put an exclamation point on a week that shows the US economy is in a very good place. The nonfarm payroll employment report saw 225,000 jobs created in January, an impressive beat of the 165,000 analyst estimate, also exceeding the highest forecast on the street. 

Wages also grew at a faster clip and the unemployment rate ticked higher after the labor participation rate rose to a 7-year high.  The economy is not at it strongest point during this record long expansion, but this overall report suggests the economy is not slowing down and that we can expect the Fed to remain on hold for the foreseeable future. 

Wall Street is also embracing the positive developments in trade between the world’s two largest economies.  President Trump seems to have good momentum in getting phase-two trade talks going after China signaled, they will halve the tariffs on $75 billion of US goods.  China’s economy is vulnerable due to the uncertainty of the coronavirus and they can’t take any chances in having trade talks collapse with the US. 

Bond markets were not fazed by the strong report and the dollar danced around and seems set to hold onto this week’s strong gains against the yen and euro.  US futures and European stocks are heading lower in what was a great week for equities. Modest profit taking is kicking in as markets investors will want to call it a week.

Oil

Oil prices remain in the danger zone after almost a week full of back and forth between OPEC + members on delivering deeper production cuts to offset the coronavirus impact on Chinese demand.  The two-day technical meeting continues to get stretched out as Russia struggles to deliver a firm agreement in deeper production cuts.  Expectations are for OPEC + to eventually deliver deeper production cuts, but they lost a lot of the momentum it could have had if they delivered it earlier in the week.  A provisional cut of 600k bpd might not be enough to give oil a bid. 

Until Chinese manufacturers return to normalcy, oil prices will have a bearish outlook as the demand destruction impact will grow.  If WTI breaks can’t hold this week low, bearish momentum might have an easy path towards the $45 a barrel level. 

Gold

Gold prices are showing resilience despite the strong US labor report.  Gold will continue to be supported on strong central bank demand and downbeat outlooks for both Europe and Asia.  The risks to the global outlook are growing and we should not be surprised if gold breaks out to recaptures $1,600 an ounce later this month. 

Germany

Germany’s woes continue as the latest industrial production figures plummeted to the worst level since the global financial crisis. The euro took a hit following the dismal German data and extended its decline to a four-month low following the softer French industrial production data. 

Calls for a rebound in the eurozone will have to get punted possibly even further as export reliant region is likely to see softness continue into the first quarter.  A German recession could keep the euro weighing heavy in the short-term.  Europe is too reliant on exports and all their forecasts are getting downgrades due to trade and Brexit uncertainty.  The euro still could finish the year much higher, but right now the short-term risks to the outlook could see the pair at risk at making a run towards last year’s low. 

Canada

The Canadian economy showed another strong month of job gains.  Canada added 34,500 jobs in January, almost doubling the consensus estimate.  The loonie firmed up initially, but gave back its gains as the US dollar remains king.  The dollar had a great week and the further gains may be on tap following the strength of the US economy and demand for Treasuries as investors remain concerned with the global outlook.

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