(Dec 17): The dollar climbed and Treasuries trimmed recent gains after US jobs data did little to strengthen the case for further Federal Reserve interest-rate cuts. Oil advanced after US President Donald Trump ramped up pressure on Venezuela.
The US currency gained against all its Group-of-10 peers, strengthening the most versus the yen. Treasuries edged lower across the curve with the yield on the 10-year up one basis point at 4.16%. In the UK, the pound fell 0.7% after inflation slowed more than expected.
Brent crude jumped 1.5% as Trump ordered a blockade of tankers going into and leaving Venezuela, raising concerns about supply from the Opec member. A rebound in Chinese stocks lifted Asian markets while US and European equity index futures pointed to gains.
The latest US labour data signalled a cooling jobs market — but not one rapidly weakening — prompting traders to hold off on increasing bets for near-term rate cuts. Following Tuesday’s report, markets priced in a roughly 20% chance of a January reduction. Attention now turns to Thursday’s inflation numbers for clues on whether the narrative may shift in the final full trading week of the year.
“We take a glass half full, rather than a glass half empty, view of the combined part-October, full-November employment report and, more importantly, we think the Fed will too,” Evercore ISI economist Krishna Guha wrote in a note. “Specifically, we do not think this was weak enough to spur another near-term rate cut.”
See also: Beef prices set record as supply tightens despite Trump pressure
Meanwhile, the Trump administration threatened retaliation against the European Union in response to efforts to tax American tech companies, singling out prominent companies, including Accenture plc, Siemens AG and Spotify Technology SA, as possible targets for new restrictions or fees.
Oil escalation
Trump’s Venezuela oil blockade represents an escalation and follows the seizure of an oil tanker last week by US forces.
See also: Fed unveils big bank supervision manual in bid for transparency
As well as lifting crude prices, the tensions helped send gold above US$4,330 an ounce, leaving it close to the record US$4,381 set in October. Bullion has jumped about two-thirds this year and is on track for its best annual performance since 1979.
Other precious metals were also gaining, with silver climbing to a record over US$66 an ounce and platinum hitting the highest since 2008.
The contrast between the performance of US equities and commodities in December is boosting the asset class’ appeal, Ahmad Assiri, a strategist at Pepperstone Group Ltd, said in an e-mail.
“That divergence is increasingly influencing cross-asset planning and allocation decisions, with precious metals emerging as a more and more credible alternative destination for capital and reinforcing what is now a well-established momentum trade,” he said.
Elsewhere, the Indian rupee jumped 1% after the central bank stepped in to support the currency. Bitcoin slid 1% to trade around US$86,700 as the token headed for the fourth annual decline in its history.
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