US stock indices are declining ahead of the Nonfarm report. Inflation is expected to decline in Europe

January 6, 2023

The US indices declined on Thursday due to rising Treasury yields as preliminary data from ADP continued to point to a robust labor market, fueling fears of aggressive tightening by the Federal Reserve. At the close of the US stock market yesterday, the Dow Jones Index (US30) decreased by 1.02%, and the S&P 500 Index (US500) lost 1.16%. Technology Index NASDAQ (US100) fell by 1.47. By the end of the day, all three indices were negative.

Today, the US will release an important Nonfarm Payroll report. Analysts expect the data to show the number of 200,000 jobs while the unemployment rate will remain unchanged. Such data could return strength to the dollar index, which is negative for stock indices. A worsening labor market data, on the other hand, would indicate that the US Federal Reserve will act more softly, which is negative for the dollar and could be a boost to indices. Currently, the Fed is forecasting an increase in the unemployment rate to about 4.6% from the current 3.7% by the end of 2023.

Equity markets in Europe traded yesterday without a single dynamic. German DAX (DE30) decreased by 0.38%, French CAC 40 (FR40) was 0.22% lower, Spanish IBEX 35 (ES35) added 0.51%, and British FTSE 100 (UK100) closed up by 0.64% on Thursday.

The inflation report will be released in Europe today. The December CPI figure is expected to be 9.7% annualized, down from the current level of 10.1%. But there is some confidence in the markets that there may be a positive surprise in the form of a stronger decline in inflation. Falling inflation indicators tend to be a growth booster for stock indices.

Gold prices fell sharply on Thursday due to a rising dollar index and US government bond yields. Recession risks and expectations of a strong labor market report are forcing investors to buy dollars. Precious metals are inversely correlated to the dollar index, so a decline in gold and silver usually accompanies a rise in the dollar.

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Asian indices were mostly on the rise yesterday. Japan’s Nikkei 225 (JP225) gained 0.40%, China’s FTSE China A50 (CHA50) added 2.47%, Hong Kong’s Hang Seng (HK50) jumped by 1.25%, India’s NIFTY 50 (IND50) was down by 0.28% and Australia’s S&P/ASX 200 (AU200) was up by 0.06% on the day.

Tokyo’s main Consumer Price Index rose to 3.8% in December, a new 40-year record. This index is a leading indicator of national inflation trends. Rising inflation increases the likelihood that the Bank of Japan will abandon its soft monetary policy this spring.

S&P 500 (F) (US500) 3,808.10 −44.87 (−1.16%)

Dow Jones (US30) 32,930.08 −339.69 (−1.02%)

DAX (DE40) 14,436.31 −54.47 (−0.38%)

FTSE 100 (UK100) 7,633.45 +48.26 (+0.64%)

USD Index 105.12 +0.87 (+0.84%)

Important events for today:

– Japan Services PMI (m/m) at 02:30 (GMT+2);
– German Retail Sales (m/m) at 09:00 (GMT+2);
– Switzerland Retail Sales (m/m) at 09:30 (GMT+2);
– UK Construction PMI (m/m) at 11:30 (GMT+2);
– Eurozone Consumer Price Index (m/m) at 12:00 (GMT+2);
– Eurozone Retail Sales (m/m) at 12:00 (GMT+2);
– US Nonfarm Payrolls (m/m) at 15:30 (GMT+2);
– US Unemployment Rate (m/m) at 15:30 (GMT+2);
– Canada Unemployment Rate (m/m) at 15:30 (GMT+2);
– Canada Ivey PMI (m/m) at 17:00 (GMT+2);
– US ISM Services PMI (m/m) at 17:00 (GMT+2).

By JustMarkets

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.

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US stock indices are declining ahead of the Nonfarm report. Inflation is expected to decline in Europe