MARKET WRAP: FTSE edges higher, NFP miss masks strong US labour market

Key Points

  • Miners, financials lift FTSE

  • Aston Martin higher after a trading update

  • Nonfarm Payrolls misses estimates, other indicators strong

  • UK house prices rise at the fastest pace since 2007

  • Eurozone inflation hits record high

  • Crude steady

  • Bitcoin drops to multi-month lows – The FTSE 100 edged higher on Friday to close the first week of the trading year with slight gains. Financials and basic materials were particularly strong with the focus on data releases from the UK, US, and Europe.

UK house prices increased by 9.8% last year, according to Halifax, the fastest rate of increase since 2007.

“In 2021 we saw the average house price reach new record highs on eight occasions,” Halifax Managing Director Russell Galley said.

However, the building society expects house price growth to slow in 2022, in part because of higher interest rates.

“Looking ahead, the prospect that interest rates may rise further this year to tackle rising inflation, and increasing pressures on household budgets, suggests house price growth will slow considerably,” Galley added.

In the US, the focus was on the labour market report. The Labor Department said nonfarm employment rose by only 199,000 in December, below expectations of 400,000. However, other indicators were strong with average hourly earnings rising 0.6% on the month and the unemployment rate dropping below 4.0% for the first time since March 2020.

“Wage growth continues to be the niggling pain threatening to turn into a severe migraine for policymakers who are keen to try and put a lid on soaring inflation,” Hargreaves Lansdown (LON:HRGV) Senior Investment and Markets Analyst Susannah Streeter said in an email. “The minutes of the latest Federal Reserve meeting indicated the likelihood of an earlier rate rise in 2022, and the starting gun being fired more quickly on a race to offload bonds from the bank’s balance sheet and this data will bolster these expectations.”

The inflationary headache is not confined to the US with Eurozone CPI hitting a record high. Inflation in the bloc hit 5.0% in November, above market expectations of 4.7%.

“Energy is still the dominant driver of the high rate, but the energy inflation rate did drop from 27.5% to 26% in December as oil price base effects have finally started to drive down year-on-year price growth,” ING analysts noted. “The rise was mainly due to higher trending food and goods prices, which have been affected by higher transport costs and shortages.”

The mixed data ultimately led to a decline in the USD with EUR/USD hitting 1.1350 and GBP/USD trading above 1.3550.

WTI and Brent crude futures were trading marginally lower but both were set to start the year off with weekly gains. Focus has been on potential supply disruptions from Kazakhstan amid political unrest in the country. TCO, Kazakhstan’s largest oil producer said it had altered output levels but declined to provide details on the size of the adjustment.

Most major cryptocurrencies were trading lower with the US jobs report providing the impetus for another leg lower. Bitcoin briefly dropped below $41,000 to its lowest level since 26th September.

“If loose monetary policy has been one of the major catalysts for the Bitcoin boom this last couple of years then the crypto crowd may be in for a rough 2022 as central banks, Fed included, are in tightening mode,” said OANDA Senior Market Analyst Craig Erlam. “And today's wage growth figures will only further galvanise them into acting to slow the pace of inflation. Somehow I don't think they'll be deterred for too long.”

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