The entire global picture turned extremely bullish by Friday’s closing with almost all asset classes surging to deep green. The Dow Jones ended the session 1.26% up at 32,403 while the S&P 500 and tech-heavy Nasdaq 100 were up 1.36% and 1.56%, respectively. Even the SGX Nifty rallied again over 18,300 and closed at 18,301 which is the second-highest weekly closing ever. Any equity index you name it, closed in the green, except the Russian market. The European markets were up 2%-3%.
But equity investors were not the only ones enjoying the gains. Gold surged 3.3% while silver soared over 7.6%! Copper jumped 8%, crude oil was up 4%-5%, Natural gas shot up 8%, and Platinum and Palladium were up over 4% each. That’s crazy 1-day gains coming from the commodities market. How could cryptos not enjoy the party? Bitcoin jumped over 5% while Ethereum and Solana were up 6% and 8%, respectively.
Fiat currencies pegged against the US dollar also gained strength. The rupee gained around 0.9% against the dollar, USD/JPY fell 1.09%, USD/CHF was down 1.88%, and USD/CAD lost a sizable 1.94%, all depicting a massive plunge in the US dollar. In fact, the dollar index itself tanked 1.89% to 110.67, after scaling above 113 yesterday.
Enough of the bullish picture, now what suddenly changed that triggered this buying frenzy across the globe? The sole reason was one economic indicator that is closely watched and that is the US employment data. The US labor market remained quite strong in October 2022 with the nonfarm payroll data coming in at 261,000, meaning that these many new jobs were created in October 2022 (excluding farm workers and other few classifications). Now, from the economic point of view, it is a good sign, depicting a growing economy but a strong US economy is currently ‘bad news' because of inflation. However, in the fine print, the number decreased from September 2022 when 288,000 jobs were added. So even if a decent number of new jobs were added, the market weighed more on the slowdown of the growth.
When inflation goes out of control (as is the case currently) a rapidly growing economy is a bad sign as it further contributes to inflation. Therefore, the central banks increase interest rates to slow down economic growth in order to tame inflation. The Fed is trying to control 8%+ inflation and has already done 375 bps hikes this year, which is the most aggressive rate hike cycle in the history of the US. In these times, if the economy is still continuing to grow, the bad news is a longer-than-expected continuation of these hikes.
But on the other hand, the US unemployment rose 0.2% to 3.7% which beat the estimate of 3.6%. This is the key indicator that the world was looking for. Job losses point directly to a downturn in the economy and this is the bad news that the world wanted to hear. Because the ongoing aggression in the rate hike by the Fed would only calm down if the economy is suppressing.
You might also have started to hear about job losses in the US. Twitter Inc (NYSE:TWTR) recently made a move to sack half of its workforce, LYFT Inc (NASDAQ:LYFT), Microsoft (NASDAQ:MSFT), Netflix (NASDAQ:NFLX), Amazon (NASDAQ:AMZN), etc. almost everyone is trying to cut down on costs, which is finally being reflected in the numbers. Job losses and economic downturns have a direct relation and if the economy is cooling off, then the rate hike would also cool off sooner than expected. This is the reason why investors sold off the US dollar quite aggressively in yesterday’s session as hopes of further rate hikes took a hit after unemployment increased higher than the forecast.