Markets Reopen For The New Year, All Eyes on The U.S. Non-Farm Report
U.S. equities closed the last trading session of the year 2016 in a sour note. At the close in NYSE on Friday, the S&P 500 index dropped 0.46%, the Dow Jones Industrial Average shed 0.29%, and the NASDAQ Composite index lost 0.90%. However, major stock market’s benchmarks still recorded gains in 2016. While the S&P 500 tallied an annual gain of 9.5 percent, the Dow Jones Industrial Average climbed 13.4 percent for 2016.
The dollar was also lower after close on Friday, slipping 0.26% to 102.38. Nonetheless, the index, which measures the strength of the greenback versus a basket of six major currencies, still marked a 3.5% gain in 2016, extending its rally to a fourth straight year of advances. Steady up moves last year took the index to the highest level in 14 years.
Next Monday, financial markets around the world will be closed for the New Year holiday with markets in New Zealand and Japan remaining closed until Tuesday.
The main focus in the week ahead will be on key data out of the U.S. which will help form expectations for how aggressive the Federal Reserve will raise interest rates in 2017. Firstly, data on manufacturing activity will be released by the Institute for Supply Management on Tuesday. The headline figure is expected to rise fractionally to 53.7 in December from 53.2 in the previous month. The non-manufacturing PMI, which is due to come out on Thursday, on the contrary, is forecast to fall to 56.6 last month after hitting 13-month high of 57.2 in November.
Between two PMI reports, the Fed on Wednesday will publish the minutes of the FOMC meeting held on December 13-14 where the central bank raised rates by 25 percentage points and shed a hawkish outlook on next year’s rate-hike path. The nonfarm payrolls report released on Friday will round up the eventful week for the U.S. Job growth is expected to remain strong while the unemployment rate is forecast to edge up by 0.1% to 4.7%. Average earnings are anticipated to advance 0.3% month-on-month in December, after falling by 0.1% the prior month.
The Euro soared to 1.07 versus the dollar in thin, light liquidity conditions on Friday but quickly pulled back to close the session at 1.0520, finishing the year 2.9% lower.
In the latest economic bulletin, the European central bank expressed optimism over inflation picking up strongly at the turn of the year thanks to a weakening local currency and rising oil prices. The euro zone will publish flash inflation figures for December on Wednesday which is forecast to show a big jump last month. Eurozone’ price of goods and services purchased by consumers may soar 1% in December compared to the same month a year ago, the rate not seen since September 2013. Core CPI is forecast to hold steady however at 0.8%
In addition, a plenty of business survey data for the Eurozone is due for release next week. Markit’s final manufacturing PMI for December will start the week before the final services and composite PMIs come out on Wednesday. Euro area retail sales figures and industrial orders numbers out of Germany for November are out on Friday.
Sterling surged to the highest level in more than a week on Friday, trimming yearly losses to nearly 17% as a result of the United Kingdom’s vote to leave the European Union in June. Policymakers expect this weakness to lead to a sharp rise in inflation in the coming year.
The UK will see a trio of PMI releases from Markit/CIPS next week – the manufacturing PMI on Tuesday, the services PMI on Wednesday and the construction PMI on Thursday. All three indices are forecast to remain comfortably above 50, which indicates an expansion but to show a marginal decline in activity in December compared to the previous month. The UK Supreme Court in January will decide whether to overturn the High Court ruling that said the British government cannot trigger Article 50 without MPs approval.
Oil futures finished the final trading session of 2016 nearly unchanged on Friday, but scored the biggest annual gain since 2009. The rally was fueled by the landmark deal reached by the Organization of the Petroleum Exporting Countries and several non-OPEC members to reduce their output.
On the ICE Futures Exchange in London, Brent oil for March delivery settled at $56.82 a barrel, near a 17-month high of $57.89 touched on December 12. The global benchmark saw an annual rise of 52%, which was its largest yearly rise since 2009.
Elsewhere, on the New York Mercantile Exchange, crude oil for delivery in February ended the week at $53.02 a barrel, within sight of a one-and-a-half-year peak of $54.51 logged on December 12. The U.S. benchmark futures contract saw a calendar-year rise of 45%.
OPEC members signed its first cooperative deal since 2008 to lower production by a combined 1.2 million barrels per day starting from January 1. The pact was followed by an agreement from 11 non-OPEC producers, led by Russia, to reduce their supplies by 558,000 barrels a day.
Nonetheless, there are concerns over the fact that the recent rally in prices could be self-defeating, as it encourages U.S. shale producers to drill more. Oilfield services provider Baker Hughes said late Friday that the number of rigs drilling for oil in the U.S. last week increased by 2 to 525, the ninth straight weekly rise and a level not seen in almost a year.
In the week ahead, market participants will eye fresh weekly information on U.S. stockpiles of crude and refined products by the American Petroleum Institute on Wednesday and data from the U.S. Energy Information Administration on Thursday to gauge the strength of demand in the world’s largest oil consumer. This week’s reports come out one day later than usual.
Gold prices reversed lower on Friday after a four-day rally as investors took profits at the end of a year. Gold for February delivery settled at $1,152.00 on the Comex division of the New York Mercantile Exchange, down 0.53%. For the year, prices were up around 9.8%, snapping three years of declines.
Gold prices soared in the first half of 2016 to hit a two-year peak in July partly due to the Federal Reserve that was cautious on raising interest rates. Moreover, Britain’s vote to exit the European Union also contributed to prompting investors to seek for the safe-haven asset.
But gold soon found its way down in October amid rising expectations over a U.S. rate hike by the end of the year. Especially, the precious metal prices lost almost 8% in November on the back of Donald Trump’s presidential victory and expectations for ramped up fiscal spending under the incoming Trump administration.
Gold prices tumbled lower in December in the wake of higher U.S. rates and the possibility that the central bank may raise rates more quickly than previously anticipated in 2017. Both a stronger dollar and the outlook for higher interest rates are typically bearish for gold – the non-yielding asset which is denominated in dollars.