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  • Weekly Summary: Non-Farm Payrolls Mount Troubles for Investors

Weekly Summary: Non-Farm Payrolls Mount Troubles for Investors

This uneasy week for the market is closing with the Non-Farm Payrolls report that may bring with it some new worries for investors. Over the past week the news has been filled with reports about the omicron variant of the coronavirus in the United States, the fact that the S&P 500 broad market index fell below 4600, the drop of Brent crude prices to $65 per barrel, the change in direction by the Federal Reserve’s (Fed) chair Jerome Powell who is said to now be in favour of tackling inflation rapidly – each piece of news brings with it a new kind of worry. But this is not all that happened this week. The Chinese transport company DiDi was delisted on Friday from the New-York stock Exchange. If a strong Non-Farm Payrolls report is added to this pile, today will become another hell of a day for investors.

Regarding the report, investors will zoom into the Non-Farm Payrolls to see the unemployment level and hourly earnings. The first indicator is forecasted at 550,000 new jobs added in November, while our modeling indicates that this figure will be within the range of 530,000-550,000 new jobs. Considering the drop of Initial jobless claims in November, the indicator maybe well at the upper margin of this range.

November unemployment is expected to decline to 4.5% from 4.6% for the previous month. This is in line with the overall decrease of jobless claims by 290,000 in the last month. So, the forecast of unemployment could also be confirmed together with the hourly earnings that are predicted to be up by 0.4%.

If this is true, the Non-Farm Payrolls report could be considered as a strong one. If investors’ paradigm of “the stronger the macroeconomic indicators, the worse for the risky assets” is intact,  more pressure will be put on the stock market. However, the pressure is expected to be less than it was in the first half of this week, but the S&P 500 index may drop below 4550 points. On its own, such a drop will not cause so much trouble, but considering the change of the upward trend in the S&P index to the downward slope, it may become dangerous. The level of 4480 would be a key fault line to distinguish the upside and downside by next Tuesday. If the index falls below this fault line, a further drop to 4100-4400 points may be expected.

Any negative news regarding a further spread of the omicron variant, to mainland China for example, may plunge the S&P 500 index below the fault line. So, it would be wise to close all S&P 500 deals for the weekend.

The oil market was devastated by a storm after OPEC+ decided to continue with the rise of crude output by 400,000 barrels per day starting January 2022. Brent crude prices immediately dropped to $65.90 per barrel, but  later recovered to $70.00, as U.S. President Joe Biden is likely to welcome such moves from the cartel and it is unlikely that additional oil from the reserves of the United States will be released. And this looks like an informal agreement between OPEC and the United States is being established. OPEC+ may agree to pump more oil while the U.S. does not threaten the market with interventions. The new price range of $68-72 per barrel could be considered as a consensus between oil producers and large importers and is likely to hold until the end of this year.

Gold prices are steadily moving towards $1750 per troy ounce leaving the major scenario of prices to slide towards $1550-1650 per ounce intact.

The upward trend for the U.S. Dollar survived this week as EURUSD failed to reach the 1.13900-1.14000 zone that could initiate a downslide for the Dollar. The Euro briefly dropped to 1.12000-1.12500 and recovered to 1.13000. The pair may struggle to gain until next Tuesday. So, it is better to bet on the downside movements in order to reach the lows of this week.

GBPUSD has a much more interesting development as it may attempt to rise to 1.33500. The only issue is where should the buy order be placed exactly as we have two strong support levels at 1.32500-1.32600 and 1.31800. The safest buy option is to place an order on Monday once the price would be close to one of those levels. The riskier option is to open a buy order today below the 1.32700 level after the Non-Farm Payrolls report is released.