Market Review from December 4th to December 8th: Last week, the market experienced a frenzy, with the golden week hitting a historic high with a sharp rise, but quickly falling back over $100. After a series of data in the United States showed signs of a cooling labor market, the eye-catching non farm sector broke all of this. In addition, the Bank of Japan has "flown out" a black swan, and the yen has skyrocketed due to early withdrawal from negative interest rate bets.
In terms of market performance, gold experienced a huge shock of nearly $150 last week, ultimately ending a three week continuous upward trend. The US dollar continued to rebound and end a three week continuous decline, while crude oil prices fell for seven weeks, marking the longest weekly decline since 2018. The Japanese yen fluctuated wildly last week, with a weekly increase of nearly 200 points.
Foreign exchange market: Last week, the US dollar only closed lower on Thursday out of 5 trading days, showing an overall volatile and upward trend. It has slightly risen from around 103.20 at the beginning of the week, reaching a maximum of 104.29. However, the expectation of the central bank's interest rate cut has restrained the upward space of the US index. Finally, the US dollar ended its previous three consecutive weeks of decline and closed last week with a slight increase of 0.77%.
As the US dollar fluctuated higher, the euro showed the opposite trend. Since the beginning of the week around 1.0880, the euro has fluctuated lower and only closed higher in one trading day. It ultimately fell below the 1.08 mark, hitting the lowest level of 1.0723. The weekly decline exceeded 100 points, reaching 1.11%, marking the second consecutive week of decline. The market is paying attention to the European Central Bank's decision this week. The trend of the pound last week was similar to that of the euro, with only Thursday's gains last week and the remaining trading days fluctuating downward. It continued to decline from around 1.2650 at the beginning of the week and eventually fell below the 1.26 level, reaching a minimum of 1.2502, marking the first week of decline in four weeks, with a weekly increase of 1.28%, or 162 points. The USD/JPY saw a sudden surge last week. After a rare hawkish speech by Bank of Japan officials on Thursday, the JPY surged over 200 points, reaching a four month high of 141.615 against the US dollar. On Friday, it rose and fell, ultimately closing at 144.89 levels. Last week, it rose by 1.28%, marking the fourth consecutive week of gains.
Commodity: Gold experienced a volatile market last week and continued to soar to a new historical high in the light Asian market on Monday, reaching $2144.68 at one point before quickly falling back. It closed at $2028 on the same day, with intraday fluctuations exceeding $100. After this false breakthrough, gold prices fluctuated around 2030 for the next few days. On Friday, under strong non-agricultural pressure, they briefly approached the 2000 level, and ultimately fell more than $60 last week, with a weekly decline of over 3%, End the three week continuous upward trend. At the same time, the trend of spot silver was dismal last week, falling for five consecutive trading days, from $25.90 at the beginning of the week and falling below $23 last Friday, reaching a minimum of 22.97. The weekly decline reached an astonishing 9%, bidding farewell to the three week continuous upward trend.
The crude oil market suffered a heavy setback last week. US WTI crude oil futures closed at $71.23, falling 3.83% last week, marking the seventh consecutive week of pressure and the longest consecutive decline in five years. Brent crude oil's rebound last Friday failed to reverse its decline, with a cumulative decline of 4.51% last week, marking the seventh consecutive week of decline.
Global stock markets: Last week, the three major US stock indexes closed slightly higher. In total, the Dow Jones Industrial Average rose by 0.01%, the Standard&Poor's Index rebounded by 0.2%, and the Nasdaq rose by 0.7%. The European STOXX 600 index closed up 0.74% at 472.26 points, with a cumulative increase of 1.30% for the week. The German DAX 30 index hit a new historical closing high, rising 2.21% for the week, marking the sixth consecutive week of gains.
In the bond market, the yield of the benchmark 10-year US treasury bond bond rose 8.19 basis points to 4.2314% last Friday, up 3.78 basis points for the whole week. The two-year US Treasury yield rose 12.42 basis points to 4.7188%, with a weekly cumulative increase of 18.25 basis points.
Weekly News Inventory:
Non agricultural "eye-catching" market explosion
Last week, before the release of the non-farm payroll report, a series of forward-looking indicators hinted at a cooling of the US labor market, and the market generally predicted that non-farm payroll would strengthen this sign. However, this script did not play out as scheduled. In November, the number of new non-farm payroll workers not only exceeded expectations, but the unemployment rate unexpectedly dropped to 3.7%, and hourly wages exceeded expectations.
On Friday, December 8th, the US Bureau of Labor Statistics released data showing that the non farm payroll in the United States increased by 199000 in November, higher than the generally expected 185000 and far higher than the previous 150000. It should be noted that the re acceleration of employment growth is partly due to the return of striking workers in Hollywood and the automotive industry.
The recovery of the manufacturing industry in healthcare, leisure and hospitality, government recruitment, and the resolution of the strike by the Federation of Automobile Workers has driven employment growth in November. Among them, the workers from the automobile strike returned to work, increasing employment by 30000 people, and the resolution of labor disputes in Hollywood also increased employment by 17000 people. In terms of increasing government employment, state and local governments are the main drivers. The growth in the healthcare sector is driven by the demand for home care. Employment in other industry categories, such as retail, shows moderate growth or complete decline.
At the same time, the unemployment rate in the United States in November was 3.7%, lower than the expected 3.9% and slightly lower than the 3.9% in October. The number of unemployed workers actually decreased by 215000 to 6.3 million.
In terms of salary, the salary increase in November slightly exceeded expectations, with an average hourly wage increase of 0.4% month on month, exceeding expectations by 0.3% and higher than October's 0.2%, marking the highest growth rate of the year. But the year-on-year growth rate slowed down to 4%, in line with market expectations, from 4.1% last month to 4%.
After the data was released, the decline of the three major stock index futures in the United States expanded, with the Nasdaq futures down 0.83%, the S&P 500 index futures down 0.50%, and the Dow futures down 0.39%. However, after opening, all three major stock indexes turned higher during the day.
The 10-year yield in the United States has rebounded significantly, rising up to 16 basis points to 4.284%, while the 2-year yield, which is sensitive to Federal Reserve interest rates, rose 11 basis points to 4.74%. The swap market's expectation of interest rate cuts from the Federal Reserve has slightly cooled.
The previously strong trend of precious metals has reversed significantly. On Friday, spot gold fell below the integer psychological barrier of $2000, marking the first time since November 27th, with a drop of up to 1.5%. COMEX silver futures fell 3% to $23.34 per ounce during the day.
After the release of non farm payroll data in November, swap contracts showed that the market lowered its expectations for the Federal Reserve's interest rate cut in 2024, and the probability of maintaining interest rates unchanged in December slightly increased.
It is widely expected that Federal Reserve officials will maintain borrowing costs at their highest level in 20 years when they meet next week, and it is expected that the Federal Reserve will cut interest rates by at least a total of 125 basis points over the next 12 months.
Acting US Secretary of Labor Julie Su said in a Bloomberg TV interview that overall job growth in the United States has exceeded expectations, and real wages have also increased. Lombard Odier Asset Management believes that employment data gives the Federal Reserve a reason not to cut interest rates in March next year.
Prior to this, a series of forward-looking data from the United States suggested that the labor market was beginning to crack.
According to data released by the US Department of Labor on the 5th, the number of job vacancies in the US dropped to 8.73 million in October this year, far below market expectations and the lowest level since March 2021. Data shows that the job vacancy ratio in the United States decreased by 617000 to 8.73 million in October, a decrease of 6.6%. This number is far below the market's generally expected 9.4 million, indicating that the continuously tight labor market may be easing.
Subsequently, on December 6th, the ADP employment data commonly known as "small non farm" showed that the number of ADP jobs in the United States increased by 103000 in November, while the market expected 130000, falling short of expectations for the fourth consecutive month. At the same time as the slowdown in employment, the salary growth rate has further cooled down. In November, the wages of retained employees increased by 5.6% compared to the same period last year, and the growth rate has decreased for the 14th consecutive month, dropping to the weakest growth level since September 2021.
On December 7th, the US Department of Labor announced that the number of first-time claims for unemployment benefits for the week ending December 2nd increased by 1000, recording 220000, in line with expectations; As of the week ending November 25th, the number of people continuously applying for unemployment benefits decreased by 64000, the largest decrease since July and the second decline since September. The number dropped to 1.861 million, less than the expected 1.91 million, but the number may fluctuate due to the Thanksgiving holiday.
Japan suddenly flies a "black swan"
Last week, the Japanese yen experienced a sudden surge, rising for the fourth consecutive week as traders speculated that the extreme dovish Bank of Japan was moving towards tightening monetary policy.
The Japanese yen has reached its highest level since August, rebounding from a nearly 30-year low last month against the US dollar. It rose 1.25% last week and 1.7% higher than the previous week. The market speculates that the Bank of Japan will soon start raising its benchmark interest rate below zero levels.
After Bank of Japan Governor Kazuo Ueda predicted that the next year would be "more challenging", the yen rose by over 2% last Thursday, which traders believe is a signal that the Bank of Japan may end its negative interest rate policy as early as January next year. The Bank of Japan will formulate its next monetary policy on December 19th.
The day before Kazuo Ueda's statement on Thursday, his deputy Ryozo Himino seemed to be laying the foundation for eventual normalization, pointing out that the Bank of Japan's first rate hike since 2007 may not be as harmful as some people are concerned.
"This direction is not surprising," said Bart Wakabayashi, manager of State Street Bank's Tokyo branch, "but this move and its speed exceeded my expectations."
Subsequently, the revised data released by the Japanese cabinet last Friday showed that due to household spending cuts, Japan's gross domestic product (GDP) shrank at an annualized rate of 2.9% compared to the previous quarter for the three months ending in September. The updated data marks the largest decline since spring 2020, while the initial data is -2.1%, and the market generally estimates a slightly smaller contraction.
Individual monthly data shows that the economy is more sluggish in the current quarter, with household spending decreasing by 2.5% in October compared to the same period last year, marking the eighth consecutive month of decline. This month, nominal wages increased by 1.5%, but still far below inflation, which is putting pressure on consumer spending.
Overall, the data released last Friday complicated the central bank's considerations as authorities are waiting for more evidence that a positive wage price cycle has formed before withdrawing from the large-scale stimulus experiment that has lasted for more than 10 years.
Before the yen surged last Thursday, almost all economists surveyed by Bloomberg predicted that the Bank of Japan would not change its policy at the end of its next meeting on December 19th. Two thirds of respondents believe that the Bank of Japan will lift negative interest rates early next year. April is considered the most likely time, and action may be taken earlier in January.
"This may be a temporary market phenomenon," former Bank of Japan official Hideo Hayakawa said in an interview last Friday. "Shibata is looking for evidence. He deliberately chose to fall behind until now, so there is no need to rush for results now."
Hayakawa stated that the Bank of Japan may not end negative interest rates until April next year. He is one of the few economists who correctly predicted the unexpected adjustment of the yield curve control for Uchida and Mino in July.
Gold's surge breaks through historical highs and falsely breaks through?
Last week, gold experienced a shocking surge and a sharp decline. After the light Asian market opened on Monday, bets on the Fed's interest rate cut continued to push gold prices higher, breaking through $2100 at one point and reaching a historic high of $2135.40, before quickly retreating and giving up all gains.
Gold prices climbed to a record high of $2144 last Monday, as bets on the Fed's rate cut increased. However, on the same trading day, they fell more than $100 due to uncertainty about the timing of monetary policy easing.
Simpson, senior analyst at City Index, said, "Gold may need a particularly weak set of data to start rising strongly from now on, as many bullish fingers may be injured when gold falsely breaks through to record highs."
Prior to the Federal Reserve's meeting on December 12-13, Federal Reserve officials were in a period of silence, and a key focus of the meeting will be their latest forecast of interest rate levels for 2024.
ANZ analysts predict that the conditions for the Federal Reserve to start cutting interest rates will emerge around mid-2024, but warn that Federal Reserve Chairman Jerome Powell will need to maintain hawkish guidance during the transition to low growth and low inflation.
According to a Reuters survey of foreign exchange strategists, the widely expected interest rate cut in 2024 will lead to the US dollar relaxing its control over other G10 currencies next year, making the outlook for the US dollar bleak.
Ole Hansen, Head of Commodity Strategy at Shengbao Bank, said, "Technically speaking, there is still a lot of work to be done for gold to make up for the damage caused."
Hansen stated that in addition to overbought momentum, the gold market may have gone too far in terms of interest rate cuts in 2024, which could keep gold prices below $2050 in the short term.
Phillip Streible, Chief Market Strategist at Blue Line Futures, said he expects gold to face some downward pressure. He added that after last Friday's employment report was released, Federal Reserve Chairman Powell is unlikely to change his hawkish stance, although it is expected that the central bank will maintain interest rates unchanged.
