10 January 2022
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US unemployment fell to 3.9% in December

By Daniel Richards

  • While the headline net gain in jobs in the US in December disappointed, the NFP report in total will likely have done nothing to change the FOMC’s recent increased focus on inflation rather than the jobs side of its dual mandate. The headline figure was 199,000, missing projections of 450,000, and slower than the (upwardly revised) November gain of 249,000. However, there remain issues around reporting, as evidenced by the November revision, and the December figure could yet also be changed. Other jobs data was solid as the headline U3 unemployment figure fell to 3.9%, from 4.2% the previous month, while the prime age (25-54) participation rate was unchanged at 81.9%, not far off the pre-pandemic January 2020 level of 83.1. Moreover, the recent pivot by the FOMC – made even more apparent in the minutes from the December meeting released last week – will be further vindicated by the 0.6% m/m rise in average hourly earnings. This was faster than the predicted 0.4%.
  • European policymakers will also have inflation on their mind as Eurozone price growth rose to a record high of 5.0%, exceeding consensus projections of 4.8%. Prices were up 0.4% compared to the previous month, while core inflation as at 2.6% y/y, making clear the impact that energy and food prices are having on the headline figure. The ECB has publicly pushed back against market bets on tightening, making the case that many of the inflationary pressures are set to ease this year, but higher gas prices present a particular risk through the winter months.
  • Industrial production in France and Germany stumbled in November, even before the spread of the Omicron variant of Covid-19 on the continent, as supply chain issues continued to disrupt activity. In France, industrial production contracted -0.4% m/m (down from 0.9% in October), missing projections of 0.5% growth, while Germany’s contracted -0.2% m/m, compared to growth of 2.4% in October.

Today’s Economic Data and Events

No major data releases today                    

Fixed Income

  • Benchmark government bonds have had a rough start to the year as markets price in a hawkish shift among major central banks. A broad index of US Treasuries fell more than 1.6% last week while European bonds endured around an 0.8% drop. The losses come amid still high levels of the Omicron variant of Covid-19, with markets looking past the pandemic to elevated inflation and pending rate hikes from the US Federal Reserve and other major central banks.
  • In the Treasury market yields on 2yr USTs rose almost 13bps last week to close at 0.8621% while the 10yr yield added more than 25bps, closing up at 1.762% after testing as high as 1.8%. Higher yields could be in track as soon as this week if the US reports another high inflation print for December mid-week.
  • In European markets there were considerable losses too. Yields on 2yr bunds rose a comparatively modest 3.7bps to -0.599% while the 10yr bund yield closed near neutral after rising almost 14bps. In the gilt market, where the Bank of England has already begun to hike, yields on 2yr gilts were up 15bps to 0.819% while the 10yr added 21bps to settle at 1.177%.
  • The sell-off in developed market bonds bodes ill for higher yielding markets with both high yield and emerging market USD-bond indices falling sharply to start the year. In local currency markets Turkish 10yr government bonds managed to stem some of their mid-week losses and yields overall fell last week, closing down 19bps to 23.03%. South African bonds sank, however, with yields on the 10yr up almost 6bps to 9.856% while Indian 10yr bonds also dropped and yields closed at 6.541%, up almost 9bps to start the year.


  • Currency markets oscillated to start the year, buffeted by the risk of Omicron derailing growth and central banks seemingly eager to hike rates. So far the broad narrative of US dollar strength carried over from the end of 2021 has remained true with the DXY index closing up, slightly, last week. EURUSD managed to moderate losses last week to settle at 1.1357 and is holding those levels in early trade today. While we suspect the ECB is still someway off from adopting as hawkish rhetoric as Fed officials have displayed recently, high inflation pressures in the eurozone mean they are also unlikely to get much more dovish.
  • Much of the USD’s gains came last week via the yen with USDJPY up almost 0.5% to close at 115.56 and edging higher at the start of this week. Among major peers, GBPUSD was the standout gainer, up 0.41% at 1.3588 as the government there looks unlikely to commit to any new Covid restrictions.
  • Commodity currencies were weaker as a rule although CAD managed the best, with USDCAD rising just 0.05% to 1.2643. Both AUD and NZD fell more substantially, with AUD down more than 1% to close at 0.7181 while NZD fell 0.69% 6o 0.6779.


  • US equity markets had a tough start to the year, with the FOMC minutes and expectations of more rapid monetary tightening prompting a more pronounced rotation away from growth stocks. As such, the NASDAQ performed particularly poorly, dropping -4.5%, but the broad-based S&P 500 also lost -1.9%. The blue chip Dow Jones saw far milder losses of -0.3%.
  • Things were more positive in Europe, where markets have benefitted from greater optimism around Omicron than there was through the close of 2021. In the UK, the FTSE 100 added 1.1% in the first week of the year, with travel, energy and leisure firms performing particularly well. Germany’s DAX added 0.4% w/w and France’s CAC 0.9%.
  • Locally, the DFM started the year on the front foot, adding 0.7% w/w, while the ADX dropped -1.3%.


  • Oil prices had a strong start to the year, supported by supply disruptions in Libya and North America. Brent futures added around 5% to settle at USD 81.75/b at the end of the week while WTI showed similar gains and closed just shy of USD 79/b after managing to push above USD 80/b intra-week.
  • Markets may be due for some adjustment in early trade this week, however, as China has now reported its first Omicron exposure. Given the country’s pattern of adopting zero-tolerance on outbreaks, oil markets may need to prepare for some form of lockdown in China.
  • Metals had a more mixed start to the week as the prospect of a hawkish Fed and higher yields helped to sink gold while industrial metals showed no uniform direction. Aluminium prices rose nearly 4% last week while copper was down almost 0.8%.

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Written By

Daniel Richards Senior Economist

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