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Non-farm payrolls disappoints, wage growth slows

The US non-farm payrolls number in December disappointed markets, with 145,000 new jobs added, below economists’ forecast of 164,000. Average hourly earnings growth softened to 2.9% – its lowest level observed in one and a half years. The unemployment rate held steady at 3.5%.

December’s non-farm payrolls data came in sharply down from November’s reading of 256,000, which was primarily boosted by the return of 40,000 General Motors workers. For the whole of 2019, payrolls increased by 2.1 million, an average of 176,000 a month. This is the slowest year of jobs creation since 2011 and marks a remarkable drop from the previous year's 2.7 million due to trade uncertainties and teh cyclical global economic slowdown.

Softer-than-expected US jobs data led to a mild sell-off in US equities and the US dollar, which might be viewed as another healthy correction of the bull run. The S&P 500 index lost 0.28%, dragged by financials (-0.78%), industrials (-0.71% and consumer discretionary (-0.55%), whereas real estate (+0.95%), utilities (+0.26%) and healthcare (+0.02%) outperformed relatively.

Technically, immediate support for the S&P 500 index can be found at around 3,263 points (161.8% fibonacci extension), followed by 3,211 points (SuperTrend, 10, 2).

The scheduled signing of a ‘phase-one’ trade deal this Wednesday will be on top of traders’ agendas. The agreement is likely to include Beijing’s commitment to address US intellectual property protection, a $200 billion farm goods purchase, and currency issues. The problem is will ‘buy on expectation, sell on fact’ happen again on this trade deal, as markets have priced in this trade optimism for over a month.

Besides, there are a couple of key economic data releases from China this week, including trade balance and Q4 GDP. China’s export growth is set to rebound to mid-high single digits in December, due to seasonal rise in orders and improved trade sentiment after the phase one deal was agreed. China’s GDP may rebound slightly in Q4 from Q3’s reading of 6.0%, driven by infrastructure projects. These projects have moved from the investment stage to the production stage. Private sector manufacturing activities continued to shrink, suffering from the scaling down of factory activities due to the US tariffs. This will add even more uncertainty in terms of job security and salary growth, which, in turn, will put pressure on consumption, even if substantial public sector growth acts to counter these negative pressures. 

US SPX 500 - Cash chart

 

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