Shrugging off hot labour market data: US dollar index, Straits Times Index, Brent crude

Market Recap

Higher-than-expected US job gains last Friday supported interest rate to be elevated for longer but major US indices managed to pare their losses, as upside in Treasury yields and the US dollar failed to sustain. This came as expectations remained well-anchored that the Federal Reserve (Fed) will stay the course on a 50 basis-point (bp) hike in December while Fed’s terminal rate held out at the 5-5.25% range as previously priced. The labour market figures being a lagging data was looked upon as an argument for some shrugging-off, considering that the strength seems to go against many of the tech layoffs headlines and more real-time labour market indicators. Breaking down the job report also revealed much of the job additions were concentrated in Covid-impacted leisure and hospitality, along with healthcare and government, while most economically-sensitive sectors still supported underlying weakness in the labour market. Perhaps a catalyst for worry over the longer term may be the pull-ahead in year-on-year (YoY) wage growth (5.1% versus 4.6% consensus), which suggests that workers’ bargaining power remains strong from low labour participation and could leave any inflation persistence on watch.

An attempt for the US dollar index to reclaim its key 105.00 level was met with a bearish rejection, as the confluence of its 200-day moving average (MA) and a key 38.2% Fibonacci retracement stands as resistance. Technical indicators are trending in oversold territory, but failure to push past previous dip-buying efforts at the 105.00 level suggests that unwinding of bullish bets from the Fed’s peak hawkishness remains far from done. That may leave the 102.00 level on watch next.

Asia Open

Asian stocks look set for a muted open, with Nikkei +0.06%, ASX +0.29% and KOSPI +0.06% at the time of writing. The day ahead may be off to a quieter start, as US futures remain fairly muted this morning but attempting to hold out, coming after the promising recovery in market losses last Friday. Further signs of a shift towards an eventual reopening in China were presented over the weekend, with several cities easing Covid-19 restrictions and scrapping PCR testing requirements. The 5.4% surge in the Nasdaq Golden Dragon China Index to end last week also suggested some divergence with its US counterparts, which may provide a more positive follow-through in Chinese equities today. The economic calendar today will leave Singapore’s Purchasing Managers' Index (PMI) and retail sales figure on watch, along with China’s Caixin PMI data.

For the Straits Times Index (STI), the 3,320 level remains on watch for further retest ahead after failing to overcome it on two occasions over the past month. After surging close to 12% since late-October this year, the index seems to be hovering within a range, with the flat-lined moving average convergence/divergence (MACD) suggesting some wait-and-see. A break on either sides of the consolidation range could be in focus to dictate greater market moves ahead.

On the watchlist: Brent crude drifting higher after OPEC+ meeting

The conclusion of the Organization of the Petroleum Exporting Countries Plus (OPEC+) meeting over the weekend was met with a firm stick to its oil output targets for now, largely with the bloc putting on some wait-and-see in consideration of the deep production cuts in October and as Group of Seven (G7) nations agreed to a US$60 per barrel price cap on Russian oil. Brent crude prices were drifting higher this morning with greater clarity presented from the meeting but longer-term, prices seem fairly stuck within the US$80-US$100 range. Downside is supported by the ongoing supply-demand imbalance situation but on the other hand, upside seems capped by mounting growth risks, which has not seen its worst. Near-term, the US$82.50 will be a key support to watch, with the level briefly giving way last week, while resistance may be at the US$89.00 level.

Friday: DJIA +0.10%; S&P 500 -0.12%; Nasdaq -0.18%, DAX +0.27%, FTSE -0.03%