Jobs Report Eyed Ahead of Stimulus Talks

Written by: Craig Erlam | OANDA Europe

It's been a decent week so far in the markets and stocks are slightly in the green again as we near the final opening bell of the week on Wall Street.

There's plenty of enthusiasm around at the moment, whether than be vaccine results or stimulus talks on Capitol Hill. For the first time this year, things are looking up and that optimism can be felt throughout these markets.

They are running low on fuel a little at this point though, with so much of that positivity now priced in. While talks getting underway over another relief package in the US is promising, it still feels there's a significant divide that needs to be overcome. The urgency to do so and pass something alongside a spending bill - needed to avoid a partial shutdown on 11 December - is also encouraging. 

The timing of the jobs report today is very interesting. A bad report could be what the doctor ordered, piling additional pressure on lawmakers to get a deal done, even an imperfect one that sees the country through the holiday period and to the end of January, at least.

A strong jobs report may not be well received if it's used as a tool to negotiate down any relief effort by Mitch McConnell. The Senate Majority Leader made similar comments last month and the concern could be that a seemingly strong report could remove some of the urgency needed to get this over the line before some support measures expire at the end of the year.

Brexit into the eleventh hour

The eleventh hour is seemingly finally upon us, with Brexit talks hitting a critical stage and the next few days being make or break. There's a lot more leaks coming from the talks now and it would appear frustration as well, with the same old issues remaining the problem - level playing field, fishing and governance. 

I remain confident that a deal will be reached and that is quite clearly shared in the markets, with the pound hitting one year highs against the dollar on Thursday, within a whisker of 1.35. It also made some ground against the euro but remains around the middle of the range its traded in over the last few years.

Clearly traders are not particularly concerned about no deal, despite nerves appearing to creep in earlier this week. There's a lot of talk about a deal potentially being done in the next few days which means additional weekend risk for the currency, should a deal finally be announced or talks hit an impasse and break down. EU leaders are hoping to review the deal next week at their summit so time really is fast running out.

There's so much hanging on that summit next week, with the EU also hoping to overcome differences over its 2021-27 budget, which includes the €750 billion recovery fund. Hungary and Poland have vowed to veto it as long as it contains rule of law clauses. But with the rest apparently willing to push ahead with an emergency budget and find an alternative mechanism for the recovery fund including the other 25 member states, their hand suddenly looks much weaker. The fact that they're such massive beneficiaries of EU funding doesn't help either. 

Oil jumps again on OPEC+ deal

Oil prices jumped again on Thursday as OPEC+ reached a deal for the coming months, with production rising only 500,000 barrels in January now, compared with two million agreed previously. The aim is to hit the two million increase now by April, according to Rissia's Alexander Novak. 

The deal may fall short of what the markets were hoping for, being a full three month delay, but it's certainly a significant compromise, with countries also being given until the end of March to make up compensation cuts. With the second lockdown not being as detrimental as the first to demand, the group is able to continue to increase production but at a slower rate than previously envisaged.

With Brent coming very close to $50 today, before seeing some profit taking, markets clearly approve which will come as a relief. The group will continue to review on a month by month basis and given the flexibility they've shown, the prospects for the oil price look much better than they did a month ago. 

Gold remains below key resistance

It's been some week for gold. It started the week hitting five month lows but has ended it with a strong rebound and is close to testing $1,850, the area that proved to be such a big support level between August and October. Gold was left out in the cold in the aftermath of the vaccine announcements but has been welcomed back with open arms as stimulus talks have got underway in the US.

Whether it will have enough to sustain these gains is another thing. I remain sceptical about the stimulus chances, although there does appear to be growing support around the bipartisan proposal that's been put forward. The next week will be crucial but should it get over the line alongside a spending bill that averts a shutdown, the yellow metal could do very well. 

Bitcoin dragging its feet

Bitcoin has lost its way a little these last few weeks. Don't get me wrong, there's no lack of volatility there but it's lost its buzz. We know that $20,000 is a major psychological barrier but bitcoin usual thrives on hype and there was no shortage of that as it's repeatedly charged towards it, squeezing out new record highs in the process. 

I'm sure it's only a matter of time until the resistance falls and we're seeing explosive moves once more. The risk is that these repeated failures becomes the catalyst for more profit taking and the cryptocurrency finds itself testing the $16,000 late November lows instead. A break of this could be troublesome in the near-term.


Related: It's Time For Capitol Hill to Deliver