US companies cut jobs in December for the first time in 8 months as the wave of coronavirus-related winter restrictions hit services sector, promising a harsh winter for the US economy.
The ADP report released on Wednesday showed that the economy was losing jobs in almost all sectors. The number of jobs was reduced by 128 thousand. The consensus forecast was +88 thousand. The service industry has predictably suffered more damage than manufacturing. Nonetheless, the market chose to ignore the weak statistics, treating the weakness as temporary and focusing on government support, which was approved in December. Its size is almost $1 trillion.
The Fed meeting minutes released yesterday showed that officials are worried about the prospects for the labor market and believe that it will face challenges in the near future. For the market, this means that the Fed has confirmed its intentions to keep the rate near zero for at least 2 more years. Nevertheless, negative statistics are accumulating on the American economy (it is worth recalling the sharp drop in consumer confidence in December, the increased number of layoffs indicated by Challenger, etc.), which may raise the question of the of stock markets overbought, where valuations have priced in quite optimistic forecasts of the US economic recovery and which are subject to correction with respective negative data surprises.
The ADP report has disappointed markets tilting expectations towards of a downside surprise in the NFP report due on Friday.
The data on German economy for December also disappointed the markets. Inflation slowed down to 0.5% against the forecast of 0.6%:
PMIs in the manufacturing and non-manufacturing sectors fell short of expectations in December, urging investors in European assets to wait and reassess the ability of the European economy to recover from lockdowns. EURUSD slid below 1.23 as weak US data limits risk appetite bringing US investors home.
Data on inflation in the Eurozone in December which release is due today, may weaken the euro in the short term, the pair's targets are correction to the level of 1.225 from which we may see rebound and continuation of the primary bullish trend.
The Senate is likely to come under the control of Democrats and the prevalence of rhetoric, which will contain hints of new fiscal stimulus will allow the stock market to grow more confidently. However, if the Democrats' plans to stimulate the economy do not meet the expectations of the markets, then there will be an opportunity to short US stocks.
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