The year started on a high note with positive data from China, Europe, the United States, and other emerging market (EM). During the week, we saw an increase in trading volumes as investors came back from the long holiday.
The equities, commodities, and forex markets saw major movements during the week. In the United States, the major indices hit new records with the most significant one being the Dow, which hit the 25,000 milestone.
The surge was attributed to the tax reform, which Trump signed into law a few days before Christmas. It was also attributed to positive data from the U.S. On Thursday, ADP released the non-farm employment change of 250K, which beat investors expectations of 190K. In addition, the data showed a reduction in the initial jobless claims.
On Friday, the Bureau of Labor statistics released the non-farm payrolls (NFP) that missed analysts’ estimates. According to the agency, the economy created 148K jobs in December compared to the estimated 190K. The unemployment rate remained steady at 4.1% while wages were in line with the estimates 0.3%.
On Wednesday, the Fed released its minutes for the December meeting, which showed optimism leading to an upgrade of the GDP growth.
Around the world, the stock markets continued the upward trajectory. As shown below, the DAX, NIKKEI, and the FTSE 100 gained by 1.48%, 3.13%, and 0.99% respectively.
In Europe, the major theme this week was the MIFIID II regulations, which went into effect on Wednesday. These are 7000+ pages of financial regulations, which the countries in the region adopted, with the goal of improving transparency in the financial market. Some of the issues relate to the recording of transactions by brokers and preventing inducements by selling research.
This week, a big loser was the dollar which saw continuing decreases even after the positive economic data. Investors believe that other economies will do better than the United States. For example, they believe that Europe, which will not have major elections this year will perform better. Other investors believe that China and other emerging markets of Argentina and Brazil will improve following past years of turmoil. The chart below shows the performance of the dollar index this week.
Commodities were among the best performers this week. The Bloomberg Commodities Index (BCOM) has surged to the highest level since 2014.
The strength has been led by a weaker dollar, improving global economy, the crisis in Iran, and the global improvement in manufacturing. Most commodities are priced in dollars. This makes a weaker dollar better for them because it influences demand facilitating U.S. export buying.
This year, data from the IMF and other global organizations show that the global economy will do well. Already, data suggests that this will happen. The crisis in Iran has led to fears of crude oil supply problems which has pushed crude prices higher. Platinum, palladium, and gold were among the best performing commodities. An improving economy was responsible for platinum and palladium prices while a higher gold price was attributed to a weaker dollar. The two have an inverse relationship.
This week, cryptocurrencies continued to rise with Ripple and Ethereum being the best performers. Bitcoin continued to recover as traders opted for alternative currencies.