Pressure mounts on central banks

Stock markets are back in the red on the final day of the week as investors continue to fret about the prospect of higher interest rates this year.

Whether this is just an exhaustion of the omicron relief trade, a case of January blues that will quickly be forgotten once earnings season gets underway next week, or something more significant will only become clear later this month.

But the data isn't offering investors much chance for relief and the jobs report is just another example of that. The headline NFP miss was never going to generate too much relief as signs of tightness elsewhere is always going to take priority. That said, investors may feel they've dodged a bullet as the million new jobs that some predicted could have further convinced policymakers that the US is close to, or at, full employment.

But the average earnings numbers, higher participation, and drop in the unemployment rate will surely overshadow the NFP number as far as the central bank is concerned. Higher participation is encouraging, as the slow recovery on this front is a major contributor to the tight labour market. But wages rising faster than expected will add to the prolonged inflationary pressures which will concern the Fed.

Will ECB fall in line with peers?

Inflation in the eurozone unexpectedly hit another record high in December, intensifying pressure on the ECB to follow in the footsteps of many of its peers and tighten monetary policy. The central bank is now among a minority that view inflation as transitory and while it may be proven correct, the data doesn't make for easy reading.

Other central banks have abandoned the transitory line recently and this will only increase calls for the ECB to do the same. Policymakers appear to firmly believe that inflation will fall without rate hikes over the course of this year. The question now becomes whether they will be afforded the time to be proven right or align with others and the markets.

Oil at two month high as OPEC struggles to hit quotas

Oil prices are continuing to climb at the end of the week as unrest in Kazakhstan and lower output from Libya further hamper producers' ability to gradually return to pre-pandemic levels. We are already seeing OPEC+ struggle to deliver the agreed 400,000 barrel per day increase and this is further exacerbating the problem.

And it's happening at a time when demand is expected to remain strong thanks to omicron symptoms being mild by comparison to other variants. It's no wonder prices are almost back at November highs, with WTI now back above $80 for the first time in two months.

The bullish case for gold is weak

Gold is marginally higher on the day after experiencing a surge in volatility around the release of the jobs report. The yellow metal spiked in the immediate aftermath of the release, with the big NFP miss hitting the dollar. But as is so often the case on jobs day, the knee-jerk reaction to the headline NFP number turned out to be the wrong one overall, and the move was quickly reversed. Volatility has remained since but it appears to be settling a little higher than pre-NFP levels.

There's a lot to digest in the jobs report and it can sometimes take a little time for that to happen. Ultimately, the takeaway has to be that the report doesn't make rate hikes or balance sheet reduction any less likely, especially with wages rising as much as they did. That's not good news for gold and so the bullish case remains weak as it struggles to get a hold of $1,800 again.

Jobs report delivers a blow to bitcoin

It would appear bitcoin traders weren't particularly thrilled with the jobs report either, with the cryptocurrency adding to its post-Fed losses in the immediate aftermath of the release. If loose monetary policy has been one of the major catalysts for the bitcoin boom this last couple of years then the crypto crowd may be in for a rough 2022 as central banks, Fed included, are in tightening mode. And today's wage growth figures will only further galvanize them into acting to slow the pace of inflation. Somehow I don't think they'll be deterred for too long.