US Open – Dollar softens on tepid 145K job gain and softer wage data, Oil’s big weekly decline, Gold stabilizes, loonie pops on Canadian employment rebound

The December non-farm payroll report showed a tepid 145,000 jobs were created, while wage growth showed a broad range of weakness in construction, manufacturing, education and health services, and leisure/hospitality.  The U-6 rate, a broader rate of unemployment fell to a record low of 6.7%, a sign that the 11-year record long expansion is likely to enter its 12th year later this year. 

Stocks were unperturbed as the slightly softer than expected jobs data and weaker wage data confirmed the Fed’s stance that the economy is still “in a good place” and that we will likely continue to see a low interest rate environment in 2020. 

It is hard to be excited for the upcoming earning season that will likely still see concern over global trade wars, a strong dollar and the steady monetary policy outlooks for most of the G10 economies.  The FOMO trade for US stocks could run out of steam today and we could finally see some resistance for what seems to be a recent trend of consistent fresh record highs. 

Oil

Crude bears are back in control after oil peaked to an eight-month high following the peak of the US-Iran conflict.  Despite persisting geopolitical risks and optimism we could see an improvement with global demand, oil prices are softening because the risk of the US and Iran entering into a war has mostly receded.  We’ve seen this movie before and we should not be surprised when we see these two adversaries resume delivering hardlines that will raise the risk of continued conflicts. 

West Texas Intermediate crude has struggled to recapture the $60-barrel level as oversupply concerns returned after a surprise build with the EIA crude inventory report and a major oil discovery by Apache off the South American coast. 

Oil price volatility will remain over the next few weeks and while many CTAs are turning bearish, oil prices are likely to stabilize on persisting geopolitical risks and improving market fundamentals. 

Gold

Gold prices initially spiked higher following the softer than expected jobs report.  Gold investors appear to be squaring up positions before the weekend.  Gold prices should consolidate over the next week as we await the details of the phase-one trade deal and whether Chinese growth showed signs of stabilizing in the fourth quarter.  The global reacceleration trade is needed for a weaker dollar and for higher gold prices.    

Gold bulls may have to wait until we get into the heart of earnings season before we see prices revisit the $1,600 an ounce level. 

Loonie

The loonie rallied after a strong rebound in Canadian jobs snapped a couple of months of poor readings.  Canada finished 2019 with the second-best year for job growth since 2007.  The loonie firmed up against the greenback after the US employment report missed expectations, but still highlighted a strong labor market. 

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