BMA - Daily Crypto & Financial Market Update (09 Jan 2023, 12.35 SGT)

Wall Street sparked a global rally in stocks on Friday after a crucial U.S. jobs report showed wage growth slowed in December, fueling bets that inflation is easing and that the Federal Reserve need not be as aggressive as some feared. Last Friday's data showed the U.S. economy added jobs at a solid clip in December, pushing the unemployment rate back to a pre-pandemic low of 3.5% as the labor market stayed tight, while average hourly earnings rose 4.6% in December from a year earlier, down from 4.8% in November. The data showed the US added 223,000 jobs in December, down from November's 263,000 pace, but above the 200,000 jobs forecast by economists, and still about double the level the Fed considers sustainable. Even though the data showed a still-robust labor market, market participants read it as a sign that the U.S. economy might be poised for a "soft landing" amid rising rates. A cooldown in wage inflation, an indicator the Fed also monitors when addressing price pressures, added to the optimism. Consequently, the S&P 500 jumped 2.3%, the Dow Jones Industrial Average climbed 2.1% and the Nasdaq Composite surged 2.6%. Despite the rally, such exuberance might be misplaced since last Friday's data argued that policy tightening was far from over. This is because everything else about this report shows a very, very resilient labor market which doesn’t bode well for a smaller rate hike. In fact, the odds have been relatively low that we would get a half a 50-basis point rate hike on February 1, but those odds are going up based on all this data. But market participants paid no heed, even after a separate report showed the U.S. services industry activity contracted for the first time in more than 2-1/2 years in December. It is noteworthy that the Atlanta Fed President Raphael Bostic said he expects the policy rate this year to get to the range just above 5.00%, and to stay there until "well" into 2024. That is a stark contrast to traders' expectations for the policy rate, now in the 4.25%-4.50% range, to top out at 4.75%-5.00% and then for the Fed to begin cutting borrowing costs in the second half of this year. The currency market also dialed back expectations that the Fed might raise rates by 50 basis points in February, and this pushed the Dollar Index down 1.2% to 103.90. A softer dollar boosted EUR/USD, which climbed 1.2% to 1.0644. USD/JPY also declined, falling 0.9% to 132.070. Bullion also benefited from declines in the Dollar, with the price of spot gold jumping 1.8% to $1,864.94/oz. The energy market appeared to be the only major asset class that bucked the buoyancy, with market participants fretting over the prospect of a global recession crimping demand. Despite a sluggish Dollar which tends to bolster the energy market, oil prices gave up earlier gains. Brent crude fell 0.2% to $78.57 a barrel, while U.S. West Texas Intermediate crude futures was largely flat at $73.77. In cryptocurrencies, Bitcoin last week remained in the narrow range of either side of US$17,000, where it has mostly lingered in since the end of November last year. Cryptocurrencies last year slumped amid several implosions of important projects, such as the Terra stablecoin ecosystem and FTX Trading Ltd. Bitcoin tumbled 64 percent, its second-worst annual performance during its 14-year history. The plunge in token prices has scared away many retail investors who had flooded into the market in 2020 and 2021, when COVID-19 lockdowns affected the US economy. The lack of trading volumes is another indicator that institutions have abandoned the asset class for now — and it could take a while before they once again regain confidence in the market. News that Justin Sun (transferred about US$100 million in stablecoins to his crypto exchange, Huobi Global, amid elevated pressure on Huobi, which saw about $85 million of cryptocurrency outflows over a 24-hour period. On of that, the exchange reported that it plans to lay off about 20 percent of its workforce as the slump in crypto markets enters its second year.