Covid fears may overshadow monthly US jobs report

The discovery of a new mutated virus has suddenly shifted the market narrative back to Covid-19 concerns. While Thanksgiving holiday-thinned markets may have exacerbated some of Friday’s price action, traders are shooting first and will look for answers later. There are some reports that symptoms from the Omicron variant are generally mild, but the world is waiting to see what scientists say about how transmissible the new variant is and if existing vaccines remain effective.

A more virulent mutation has always been a risk, but one which the market has been prepared to look through. The global recovery, and the ensuing story around Fed policy normalization and how quickly policymakers will taper and raise rates was the current narrative. But the new lockdowns in Europe and the reimposition of travel bans across the globe, in the hope of buying some time for scientists, have hit sentiment very hard.

Whatever happens now, the market is going to be a little more wary and watchful of the Covid outlook. Markets may struggle to find a bid in the next few sessions as a sense of gloom spreads over the festive season. Friday’s market swings were encapsulated in the Vix index, known as Wall Street’s fear gauge. This widely followed indicator of market volatility spiked up to multi-month highs as investors scrambled to hedge their portfolios against further market swings.

US Non-farm payrolls to inform on December FOMC meeting

As always, traders will be watching the monthly US jobs report on Friday as questions mount about the future direction of monetary policy in the world’s largest economy. The headline non-farm payrolls figure is forecast to print around 500,000 job gains in November and unemployment fall one tenth to 4.5%. Recent data point to signs of a tightening labor market, with new applications for US unemployment benefits falling to their lowest level in over fifty years.

A big jobs print could add to expectations of a rise in borrowing costs. The US dollar has surged higher recently to levels last seen in July last year, as the market increases the chances of the Fed having to act sooner. Indeed, before the worrying Covid news last week, traders had price in the first interest rate rise in June next year.

These bets have now been pushed back with the yield on the 10-year US Treasury bond sinking below 1.50% on Friday. The Dollar Index (DXY) also printed a bearish looking candle on the week, though the greenback closed above 96. Whether the classic risk-off trading continues into this week with havens in demand and commodity currencies beaten down will very much depend on the science. This means position unwinds may have a little further to run. We also note that seasonal trends for the USD tend to turn more negative in December.

Monday, November 29 

JPY: BOJ Governor Haruhiko Kuroda speech, Japan October retail sales

EUR: Germany November CPI

Brent: Iran nuclear talks resume in Vienna

USD: Fed speak – Fed Chair Jerome Powell, New York Fed President John Williams

Tuesday, November 30

CNY: China November manufacturing and non-manufacturing PMIs

JPY: Japan October industrial production, unemployment

EUR: Eurozone November CPI, Germany November unemployment

GBP: BOE’s Catherine Mann speech

USD: Fed Chair Jerome Powell and US Treasury Secretary Janet Yellen testify in US Senate

USD: US November consumer confidence

CAD: Canada September GDP

Wednesday, December 1

AUD: Australia 3Q GDP

CNY: China November Caixin manufacturing PMI

GBP: BOE Governor Andrew Bailey speech

USD: Fed Chair Jerome Powell and US Treasury Secretary Janet Yellen attend House hearing

USD: US November ISM manufacturing

US crude: EIA weekly US crude oil inventory report

Thursday, December 2

AUD: Australia October trade

Brent: OPEC+ meeting

EUR: Eurozone October unemployment, PPI

USD: Fed speak – San Francisco Fed President Mary Daly, Richmond Fed President Tom Barkin

USD: US initial weekly jobless claims

Friday, December 3

CNY: China November Caixin composite and services PMIs

EUR: Eurozone October retail sales

USD: US November nonfarm payrolls

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