Mixed Jobs Report Turns Focus towards Trump Inauguration

Friday’s US jobs report for December was generally mixed, but still showed strong signs of continued improvement in the US employment situation. Although the headline non-farm payrolls (NFP) figure disappointed at 156,000 jobs added in December against prior expectations of around 175,000, a major bright spot in the data came from wage growth. Average hourly earnings rose by 0.4% against a 0.3% consensus forecast, showing a large improvement over November’s surprising -0.1% decrease in wages. Another bright spot on Friday was the revision of November’s already-strong 178,000 jobs up to 204,000. The unemployment rate in December rose slightly to 4.7% from November’s 4.6%, but the figure was in-line with consensus expectations.

Despite December’s NFP shortfall, the overall jobs data skewed towards the positive side, especially since the headline disappointment was not dramatic. As a result, the Federal Reserve’s currently hawkish trajectory of expected rate hikes is not likely to be affected by Friday’s employment figures. The immediate market reaction was muted, as might be expected from a mixed report, but there was a modest initial boost for the dollar and equities, and corresponding pressure on gold prices.

With the heavily-anticipated US jobs data out of the way, markets will now turn full focus towards the next big question mark – President-Elect Donald Trump’s formal inauguration on January 20th. In the run-up to this event, markets have clearly been affected in major ways by heightened expectations over what a Trump Administration may bring. US equity markets have been enamored with Trump since his November election victory, buoyed to dizzying all-time highs by bold promises of US economic growth, boosted fiscal spending, lower corporate taxes, and financial de-regulation. At the same time, the dollar has also risen sharply and gold has plunged on higher interest rate expectations that have been driven partially by Trump’s promises.

As these market moves for the past two months since the November election have been fueled by little more than these promises and a healthy dose of optimistic anticipation, will the actual inauguration of this brand-new administration finally bring a reality check to the markets? Although it is not expected that the inauguration event itself will prompt major market moves, Trump’s foray into his new role is bound to be rife with both political and economic challenges. Differences between the promises made and what can/will be done by the new administration will likely be made apparent in the ensuing days, weeks and months after inauguration.

If the reality of this new administration fails to match the euphoria that has been generated since November, as could likely be the case, equity markets will be at risk of pulling back substantially from the current all-time highs. Likewise, the US dollar could begin to stumble significantly and gold could receive a further boost from its recent lows.