NFP react: Much ado about nothing, dollar softens, oil surges, gold outflows, Bitcoin’s unstoppable rally

The labor market recovery hit a brick wall in December as the winter virus surge continues to weigh on businesses.  The negative December nonfarm payroll report was expected as COVID lockdowns pummeled 498,000 leisure and hospitality jobs.  Investors are shrugging off this disappointing NFP report as the implications incrementally boosts expectations for more fiscal stimulus.  US stocks held onto its earlier gains as the rising prospects of more stimulus will accelerate the growth outlook. 

The US economy lost 140,000 jobs in December, which was much worse than the consensus estimate for a gain of 50,000 jobs, but within the range of forecasts.  Anyone doubting the economy needs more help can look at total payrolls, which is around 9 million less than pre-COVID levels.  Even with the Biden administration working in sync with the Fed, the economy still has a long way to go.

While the headline of a negative print is disturbing, the positive revisions +135K over the past two months took away some of the pain. 

FX

After bearish dollar bets nearly rose to a decade high, excessive positioning warrants a strong rebound for the greenback.  The playbook of terrible US data bolstering stimulus expectations is being tweaked now that we will have a Biden administration.  Biden’s aggressive approach to provide support for the economy means worse-than-expected economic data might not move the needle as much as it used to.  The consensus trade on Wall Street is for significant dollar weakness, it just needs a decent pullback before leveraged-and real-money managers can ramp up their shorts.    

The dollar softened after the employment report signaled arguments could be made for the Biden administration to provide even more support. 

Oil

Crude prices continue to rally as US COVID cases near their peak and as daily vaccinations start to increase.  Energy traders are looking beyond the short-term risks of virus mutations that could be up to 70% more transmissible.  Brent crude is surging after the EU secured an extra 300 million doses of Pfizer-BioNTech’s COVID vaccine and still reaping benefits from the Saudi surprise massive production cut move that eased resurgent COVID concerns.

WTI crude is expected to have big gains later this year once most of the world is on the other side of COVID and as dollar weakness accelerates, which is why the oil space is ignoring a lot of the short-term coronavirus pain.

Gold

Gold prices tumbled on speculation ETF investors are about to abandon the safe-haven trade since the US political situation will see stability with President-elect Biden and as the US begins to speed up their vaccine rollout.  Gold’s tumble at the European open was unusual for a nonfarm payroll Friday.  Someone big or a hedge fund is abandoning their bet on bullion and that could reverberate further. 

The institutional interest for Bitcoin is starting to really hurt the long-term outlook for gold.  The Bitcoin bubble will pop at some point over the next few months if not sooner, but until then gold is losing the backbone of big-money interest. 

Gold is off the session lows but remains vulnerable following the weaker than expected jobs report that boosted arguments for the Biden administration to be even more aggressive in delivering support to the economy.  Gold has fallen around $90 since Wednesday and many traders are settling up for the week. 

Bitcoin

Bitcoin’s parabolic move higher is still primarily being driven by institutional flows.  Bitcoin volatility will remain elevated and right now the hot streak has everyone eyeing the $50,000 level.  You can easily make the argument for Bitcoin to rally towards $50,000 or tumble back to $30,000.  Retail interest is growing for Bitcoin and the other top altcoins, but the mainstream interest still pales in comparison to the institutional money that is still flowing in.

Bitcoin is all about momentum and this volatility will not ease up anytime soon.