292,000 was the number of jobs added to the U.S. economy in December, unfortunately was not enough to restore confidence in Wall Street.
The first week of 2016 was awful and painful for equity investors as stocks around the globe tumbled heavily. In fact, S&P 500 had its worst week in four years and the worst start to a year on record, despite China ending Friday on positive note and US Nonfarm Payrolls easily surpassing markets estimates. The largest 500 companies’ index lost more than a 1 trillion dollar sending it in a correction territory along with the Dow Jones and NASDAQ.
Oil was another asset class shorted heavily the past week, falling by more than 11% to trade at 12-year low. After dropping by more than 70% for the past 18 months both benchmarks have not found support yet. According to Baker and Hughes, rig counts fell by 20 past week to keep only 516 operating, which is about third of operating rigs a year ago; however, major oil producers within OPEC and outside don’t seem to slash output yet, keeping the supply glut persisting for the foreseeable future. On the other side, option markets are providing fresh signals that prices could continue moving lower as put option premiums to sell at $25 are increasing. Some investors are even buying puts at $20; either for protection or betting on prices to drop below $20, indicating that turmoil is not over yet in energy markets.
Investors rushed into gold although many traders questioned the status of the precious metal as safe haven lately. While dropping slightly Friday, gold appreciated 3.65% during the course of the first trading week of 2016 closing above $1,100 to make it the best weekly performance since August last year. Speculators cut their net short positions from a record level in the week to 5 Jan according to latest CFTC data and if market conditions did not improve in the next couple of days and confidence partly restored than more bullish players are likely to come in and lift prices higher. Short-term target stands at 50% retracement from 15 Oct high to 3 Dec low at $1,118 followed by $1,135 “61.8% retracement”.
Best trading major currency is an easy guess, the Japanese Yen. The robust U.S. jobs report on Friday did not provide the USD support against the JPY even though speculators started looking for March as an expected month for second U.S. rate hike. Whether JPY strength will continue moving higher depends on two factors, market volatility and BoJ actions. The Yen ended Friday at 4.5 months high against the dollar, 14 months high against the cable, and 8 month high against the Euro.
Meanwhile commodity currencies slump is probably not over yet with CAD, AUD and NZD continue to be hit by multiple factors. Jobs figure in Canada bounced back strongly in December last year adding 22,800 jobs versus expectations of 8,000. However, all jobs added were part time with 6,400 losing their full time jobs, and the central bank of Canada could be in difficult situation needing to act on dropping oil prices, weaker housing and manufacturing sector by further easing monetary policy. On the other hand, devaluation of the Chinese currency and the rapid changes Chinese authorities implementing to control markets will continue to influence the Aussie and Kiwi trade.
Cable continued to experience tough times, dropping to levels last seen in June 2010 against the USD. The Bank of England is meeting on Thursday and although no actions to be taken at the meeting, traders are keen to know how the central bank will react to market volatility and recent negative data. A dovish tone will likely pull the pound further lower.