David JonesAn outlook on the week ahead, considering the effects of the underwhelming US employment figures released last Friday. Find out what to expect from the stock markets, the dollar and oil prices.
The impact felt on the stock market
The week has kicked-off with signs of increased volatility. Traders are being cautious after last Friday's USA employment figures didn’t meet expectations - jobs were created in the American economy, but not at the rate that analysts had forecasted.
These figures – provided by the Bureau of Labor Statistics – added pressure to the stock markets going into the weekend - pressure that has continued this week too.
Only a few weeks have passed since the broader US bench mark, the S&P 500 index set fresh all-time highs, so last week's slide needs to be understood within this context. There have been quite a few sharp falls on the way out to uncharted territory for US shares. Still, these drops have proved with hindsight to be great buying opportunities. For the time being, any drops will be expected to be viewed the same way by investors. Nevertheless, Friday's weaker finish could make for some wild fluctuations in stock markets this week.
What about the US Dollar?
The underwhelming US employment data also weighed on the dollar. There are a couple of obvious factors at play here - a slightly weaker US economy and little reason for the Federal Reserve to accelerate its program for raising rates is always going to push the dollar lower. Paradoxically, this resulted in a good recovery for both the pound and the euro. This recovery took place towards the end of last week, after these two currencies being under pressure during the first half.
Brexit continues to be the greatest influencer for the pound. Despite signs of early weakness last week, GBP/USD still seems to be in recovery mode, due to what looks like some (very welcome) progress on UK/EU discussions. Should this recovery remain in place, the first objective would be a run back to the 1.33 levels hit back at the end of September. Brexit discussions aside, the focus for GBP traders this week will be Wednesday's latest update on the state of the UK economy. The quarterly GDP is expected to show around 0.2% growth over the past three months.
The ripple effect on oil
Last week the oil price once again hit a fresh multi-year high, a level that almost equalled the highs last seen in November 2014. This is another market that may have a temporary pause following the weaker US employment data. However, oil still has plenty of momentum behind it, and a small drop may just serve to bring in new investors especially those who feel they have missed out on the surge over recent weeks - acting as a backstop to any deeper weakness.
