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Week Ahead: 2022 kicks off with NFP

January 04,2022 10:48:34

The first week of the new year should get markets firing after the holiday period, as we have a packed calendar of risk events. More broadly, the FX space has been subdued while equities continue to inch ever higher. The risks around the Omicron variant still linger, but the lower share of hospitalisations is comforting risk takers.

The key event of the week will be Friday’s US employment data for December. A strong rebound in non-farm payrolls is expected after the disappointing 210k increase in November. Analysts are pointing to the increase in the participation rate to 61.8% in last month’s report which could signal an easing in labour shortages.

At the most recent Fed press conference, Chair Powell noted the rapid drop in the unemployment rate as one factor behind the FOMC’s recent hawkish pivot. Further upticks in the participation rate will also be welcomed and could push the DXY out of its recent range.

Major risk events of the week

04 January 2022, Tuesday:

-US ISM: Strong demand for goods saw manufacturing pick up in November, but the activity gauge is forecast to ease from 61.1 to 60.2 in December. Focus will be on the prices paid element as factories might continue to struggle with pandemic-related shortages of raw materials, which would keep inflation elevated.

-OPEC+ Meeting: The cartel is set to stick to its planned output increase by adding 400k bpd, despite fears over the new variant hitting demand. Analysts expect a further easing in supply cuts to push the market back into surplus this year. There will also be strong supply growth from non-OPEC nations.

05 January 2022, Wednesday:

-FOMC Minutes: The Fed turned more hawkish at this meeting, saying they would end QE purchases in February rather than May. They also signalled the prospect of three rate hikes rather than just one. Any details on the timing of the first rate hike will be in focus.

07 January 2022, Friday:

-Eurozone CPI: Consensus sees the flash estimate falling to 4.4% from 4.9% in November. Core inflation rose to a record high of 2.6%. The recent fall in oil prices should help moderate price pressures and take the pressure off the ECB. That said, the growth outlook is looking grim with the new tougher restrictions in many parts of the region.

-US Non-Farm Payrolls: After November’s surprise miss, analysts are currently forecasting an increase of 450k jobs in December and the unemployment rate to remain around 4.2%. Average hourly earnings are expected to ease from 4.8% to 4.2% y/y.

-Canada Employment: After the bumper 153.7k job gains in November, the spread of Omicron should see employment growth slow substantially. A small uptick in the jobless rate is forecast after the prior multi-month low at 6.0%.

Jamie DuttaAnalyst / Trader

"With extensive experience as a full time trader and financial market commentator, I have worked as a trader in top tier investment banks and trading houses, including Morgan Stanley and GAIN Capital trading Forex, Index derivatives. and Bonds. I combine technical analysis with a deep fundamental knowledge to identify trade set-ups. My real life experience allows me to break down the complexities of financial jargon and trading. This means everyone can better understand the compelling forces of greed and fear which are realised every day in countless ways across markets."

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