EUR/USD dips after strong US jobs data

Stocks are set for a stronger start, although inflation concerns persist. ECB policymakers are indicating a Q4 rate hike and UK house price growth slows.

• US NFP eases fears of an Omicron hit to the jobs market
• Amazon records single biggest daily gain in value ever
• Oil holds steady around 7-year high, US – Iran talks see progress

Europe is set for a positive open after a broadly upbeat close on Wall Street on Friday. The Nasdaq and the S&P500 posted respectable gains whilst the Dow Jones closed flat following the release of jobs data which was significantly better than what the market was expecting.

Following the hugely disappointing ADP private payroll reading (-301k), expectations were low heading into Friday’s NFP release. Yet, the number of payrolls added, 467k, was well above the 150k forecast. And not only that, but Decembers’ headline payroll number was also upwardly revised to 510k, from 199k.

The data quickly calmed concerns of an Omicron hit to the economy across December and January. But when combined with the 5.7% above forecast rise in wages, the data also boosted inflation concerns and expectations of a 50-basis point rate hike in March. However, fears surrounding a more aggressive Fed were overshadowed by blowout earnings from Amazon. 

AMZN stock saw the single biggest daily gain in value ever, a day after FB saw the biggest ever loss in value!

European markets are set to head out of the blocks on the front foot despite ongoing inflation fears and a disappointing Chinese service sector PMI. Activity in the service sector expanded at the slowest pace in 5-months after Omicron cases surged as restrictions were imposed to stem the spread of the virus, hitting both business and consumer sentiment.

Housebuilders in focus

On the FTSE, housebuilders could be in focus on reports that UK house prices grew at the slowest monthly rate in 8 months, as the pandemic house price boom starts to fade. The rising cost of living combined with higher interest rates and the prospect of more rate rises to come are acting as a brake on house price growth. House prices rose 0.3% in January MoM.

EUR/USD 

In the FX markets, the euro is pulling back from 2022 highs reached last week. The single currency received a boost from a more hawkish than expected Christine Lagarde last week, who didn’t push back on expectations of a rate hike in 2022. Over the weekend more ECB policymakers hit the airwaves saying that they expect a rate hike in the final quarter of this year. Today, the euro is easing back owing to a stronger US dollar and weaker than expected German industrial production. EUR/USD bulls would look for a move over 1.1480 to open the door to 1.16.

Oil

Oil prices are holding steady around 7-year highs reached on Friday (where WTI crude topped $90 per barrel). Oil prices booked gains for a seventh straight week amid ongoing concerns over supply disruptions, as geopolitical tensions remain high between Russia and Ukraine. Ukraine is a crucial transit hub for oil coming from Russia to Europe. 

Signs of progress in US – Iran talks could just take the edge off the impressive oil rally as the talks move towards a conclusion. The revival of a deal restricting Iran’s nuclear weapons development could see US sanctions on Iranian oil lifted, bringing more oil back into the market.