Risk sentiment worsens as inflation spooks market participants.
Friday's North American employment figure, awaited as always with great interest by market participants, did not go unnoticed.
As on previous occasions, the figure showed uneven data between job creation and the unemployment rate. The new payrolls came well below the forecasts, 210k vs 550k. However, the unemployment rate dropped notably to 4.2%, down to levels close to those before the pandemic and full employment. The participation rate also improved to 61.8% from the previous 61.6%, an essential figure since the Federal Reserve indicated it as a target - the need for the entire working population to be incorporated into the job market.
The importance of this figure lies in the fact that a move towards full employment - the Fed's primary objective - adds greater pressure to this process and increases expectations for interest rate hikes.
And the market reaction after the publication was the usual one when there is a disparity between the payroll number and the unemployment rate. At first, the market pays attention to the low number of new job creation and the rebound in the Treasury bond yields and stock market purchases. However, immediately after recognizing that the unemployment rate improves significantly and is approaching full employment levels, the market acknowledges that interest rate increases are close and sales in the stock markets are precipitating. This is especially valid for those technological stocks that would be more affected by the tightening of financing conditions.
This kind of behaviour has been repeated during the recent NFP reports, but what will truly lead the Fed to modify its monetary policy is the unemployment rate – which is already at levels that could be classified as full employment.
The index that suffered the most significant decline was the Tech100, which fell just over 2% in the session and is technically close to the levels where the 100-day SMA line passes, around 15422, which acts as support and pivot.
The market is already acting with the conviction that interest rates will rise in the United States as early as the second quarter of next year, a factor that will put pressure on the stock markets. To this are added other elements of uncertainty, such as Omicron’s evolution and the increasing geopolitical tension due to Russia's potential invasion of Ukraine.
Thus, the market has gone into risk aversion mode with purchases of treasury bonds as safe havens. The 10-year bond yields have fallen to 1.34% despite expectations for interest rate hikes.
USD/JPY has already fallen by three figures from the recently reached highs and is technically supported by the 112.70 level, below which it would work its way to further declines to the next zone around 111.50.
Sources: Bloomberg, Reuters.
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