Stocks lower after soft NFP and Omicron jitters, Oil rallies, Gold holds onto gains, Bitcoin hovers

US stocks declined after a soft employment report and as traders remain on edge over the uncertainty with the Omicron variant. The next couple of weeks will remain volatile as the focus falls on the latest inflation report, the December 15th FOMC meeting, and further clarity on the impact with the Omicron variant. 

A record ISM Services reading did not excite traders, perhaps they focused more so on the supplier deliver delays, wage increases, and labor shortages. Technology stocks are getting hit hard as Facebook, Microsoft, and Square sell-off.   

NFP

The US economy is adding jobs at a slower pace as employers are starting to have success luring people back to the labor force. If wages continue to rise, that will be the key for companies to reach their hiring targets. 

The November employment report showed US employers added 210,000 jobs, a miss of the 550,000 consensus estimate and well below the upwardly revised prior reading of 546,000 jobs. A headline miss with the nonfarm payroll report, may be mostly attributed to seasonal factors. The underlying components make this labor market report not so bad as people are coming back to the labor force, with the participation rate improving from 61.6% to 61.8%.

Wage pressures may be slowing as average hourly earnings dipped in November from 0.4% to 0.3%, but some of that could be attributed to the weakness in lower paying hospitality jobs. 

The Fed may view this as a positive employment report as minority unemployment improved significantly and the participation rate is now only 1.5 percentage points lower than in February 2020. Fed rate hike expectations are settling around two rate hikes next year. The headline jobs miss takes away momentum from an accelerated tapering but allows them to increase the taper pace by $5-10billion to the monthly pace. 

FX

The Treasury has placed 12 countries on a foreign exchange watchlist, bringing back China to the list, while adding Japan, Switzerland, and Germany.  The Treasury refrained from calling any country a currency manipulator, but both Vietnam and Taiwan will get enhanced analysis.

Oil

Crude prices extended gains after a mixed payroll report showed the labor market recovery is moderating but still headed in the right direction.  The Omicron variant continues to be the key to short-term crude demand outlook and the latest updates have been mixed.  A South African study showed that Omicron reinfection risk is 3X higher.  The study of 2.8 million positive COVID samples in South Africa showed the Omicron mutation has a substantial ability to evade immunity from prior infection.  As Omicron spreads across the US, energy traders can’t forget about Delta as hospital admissions are increasing across 39 states. 

The aftermath of the OPEC+ meeting on output has many traders believe that if Omicron poses a bigger risk to the short-term crude demand, that would be met with a quick response of production cuts.  

Gold

Gold prices initially popped after a big headline jobs miss lowered the chances that the Fed would double the taper speed at the December 15th FOMC meeting, which would also push back expectations for that first Fed rate hike.  After traders processed the entire employment report, they realized it was not as bad since the participation rate rose sharply with both black and Hispanic unemployment also improved significantly.

Gold is still near one-month lows as markets continue to anticipate two Fed rate hikes next year, which should keep the dollar in demand.  Even as the Fed seems poised to wrap up tapering around the start of the first quarter, traders are not confident on when real yields will turn positive and that should be a primary driver for gold to rally after Wall Street confidently fully prices in the first couple of Fed rate hikes.  Leading up to the December 15th FOMC decision, gold should consolidate between $1750 and $1800 as next week’s inflation report doesn't come with an extremely hot inflation report that includes a reading of 7% or higher. 

Bitcoin

Bitcoin is in ‘no man’s land’ right now and that does not seem to be changing anytime soon.  The long-term bullish case remains intact but prices seem poised to consolidate between $52,000 and $60,000.