NFP data (Non-Farm Payrolls) from November 2016 indicates that employment increased by an additional 178,000 new jobs. This is a marked improvement on the 142,000 revision by analysts. The bulk of these new jobs came from healthcare, professional services, and business services. NFP data in 2016 has whipsawed between a July high of 271,000 new jobs and a May low of just 24,000 new jobs. Consensus estimates for January 2017 with the reference point December 2016 are 172.4K jobs. The market expectation for November jobs was 175,000. If we look at the individual sectors, we see gains of 19,000 in construction, and gains of 28,000 in healthcare. Business services increased by 63,000 new jobs, and that is made up of consulting services, support services, admin services, bookkeeping services, and related services.
Unemployment Rate Plunges to 4.6%
What is particularly important about the recent performance of the US economy is that the unemployment rate plunged to 4.6%. This makes it more likely than any point in the year that the Fed will act at its final meeting on Wednesday, 14 December 2016. Employers across the US continued to hire at a healthy rate during November. This is the lowest unemployment level in the country in 9 years. Per official data releases, some 15 million new jobs were added to the US labor market since it hit a low point in 2010. However, there is still growing concern that many of the deep-seated challenges facing the US economy have not been solved, and key issues have not been addressed. The meeting on Tuesday/Wednesday, December 13/14 2016 is likely to focus on declining unemployment figures as the catalyst to push through a 25-basis point rate hike.
Which Sectors of the US Economy Are Booming?
This is the lowest unemployment rate since 2007 August, but the figures should be scrutinized since they don’t include people who have stopped looking for work. This is one of the long-term worrying trends of the US economy – people who have simply opted out of the workforce altogether. Much of the job creation that has taken place is in the service sector. And the mining and manufacturing sector has shed tremendous numbers of jobs since 2015. The rebound in construction is notable, with 155,000 jobs created in the past year alone. This is likely to play well into a Trump presidency in 2017. In October 2016, the broad measure of underemployment indicates a figure of 9.5%. For the unemployment rate in November 2016, the figure is just 4.6%. What is particularly impressive about the US economy is the addition of 250,000 new jobs in the restaurant industry. Employment is tight in the sector, and this is presenting employed individuals with many opportunities for advancement towards supervisory and management levels.
Important figures released in NFD data report:
- Private-sector average hourly earnings dropped to $25.89 in November
- Earnings increased by 2.5% in November, lower than the 2.8% growth in October
- The underemployment rate was 9.3% in the month of November, down from 9.5% in October
Trading Opportunity #1 – Boeing Company Stock Glides
Boeing Company (BA) stock is currently trading at $152.25 per share, down 0.09% or $0.14. This stock price has dropped the market capitalization to $93.96 billion. In terms of price/earnings ratios, the Boeing Company has a respectable figure of 23.27. It has $6.54 earnings per share, and a 52-week trading range of $153.08 on the high-end and $102.10 on the low end.
The big news for Boeing of course is the contract that Norway awarded it. That billion-dollar deal helped to drive up the share price recently, but there is more where that came from. The United States Navy is purportedly in the process of replacing its F/A -18 Hornet Fighter Jets. Taking their place will be the F/A 18E/F Super Hornets. With the Trump administration waiting in the wings, this deal could boost Boeing stock enormously.
Trading Opportunity #2 – Going Short on the USD/JPY Pair
The USD/JPY currency pair is trading at 113.503, down 0.57% or 0.648 Japanese yen. The currency pair rallied for much of November, but weakened as the dollar pullback began. We are still seeing some residual weakness in the greenback, despite strong NFP data. The 52-week trading range of this currency pair is 123.47 on the high-end and 99.57 on the low end. Over the past 5 trading days we have seen the Japanese yen weaken from 112.6560 to its current level. In terms of the moving averages for this pair, the 5-day MA through the 200-day MA all indicate a bearish position.
The numeric indicators present a different picture, with the relative strength index, stochastic relative strength index and the Williams % R indicating a bullish prospect and the CCI and ROC indicating a bearish prospect. Part of the reason we are seeing such volatility with the USD/JPY pair is the recent spike in oil prices. Back on Thursday, 1 December, the benchmark Japanese index – the Nikkei 225 – popped 2% after OPEC announced its first deal in 8 years that would reduce production by 1.2 million barrels. The All Share Index surged 2.25%, on hopes that Asia (Japan and China) would rally with this news.
Trading Opportunity #3 – Oil Is On The Up and Up or Is It?
The historic OPEC agreement on Wednesday, 30 November 2016 marked a dramatic turn from past conferences where consensus was hard to come by. That OPEC could agree to cutting production is substantial, but it may not prove sustainable in terms of oil prices. For starters, Canada has now fired up its oil drilling rigs across the country. This invariably means that Canadian output will increase, thereby cutting into the shortfall in OPEC oil. Prices will adjust accordingly. The Vienna agreement is substantial in that it has helped to drive up the price of WTI crude oil to $51.68 per barrel and bring crude oil (the international benchmark) to $54.46 per barrel.
OPEC is currently responsible for producing 33% of global oil output. Now, production will be cut by approximately 4% and the January output will be reduced to 32.5 million barrels per day. If OPEC is hoping to hit $114 per barrel, it is unlikely to happen. For starters, the higher oil price will entice non-OPEC members to start drilling. This is exactly what is happening with Canada, and the US will follow suit. For that reason, we can expect short-term gains in the oil price, but this is unsustainable over the long term.
Trading Opportunity #4 – FTSE 100 Index on the Way Down
The FTSE 100 Index is currently at 6,730.72, down 0.33% or 22.21 points. The All-Share UK index has been on the decline since 25 November 2016 when it was at 6,840.75. On the day, on Friday, 2 December 2016, the index had 54 members down and 47 members up. Its year-to-date return remains positive, owing to a depreciated GBP, and the 1-year return is at 12.36%. The best performing stocks on the FTSE 100 index include Land Securities Group PLC (+2.18%), Randgold Resources Limited (+2.10%) and Royal Mail PLC (+1.98%).
On the flipside, there were some notable losses. These include the Royal Bank of Scotland Group PLC (RBS) (-3.15%) Rolls-Royce Holdings PLC (-3.08%) and Barclays PLC (-2.78%). Major mining company BHP Billiton PLC (BHP) also hit the skids, and was down 2.61%. UK mining giant Glencore (GLCNF) was also down 1.99%. When we take technical factors into account, we see the FTSE 100 index remains well above the 5, 10, 20, 50 and 100-day moving averages. It is bullish on that account. It is bearish on the 200-day moving average and the stochastic RSI numeric indicator.
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