Daily summary: Labour market not so strong after all?

Today's session brought a continuation of the dollar's sell-off, while on the stock market the mood was rather good for most of the day. The key event of the day was the ADP report, which came out really bad, which theoretically bodes ill for Friday's government NFP report.

The ADP report showed... a decline in employment for January at 300k. Such situations in the labour market are rare, although of course the pandemic brought a few such cases, especially at the very beginning. A reading close to 200k was expected today, and previously the ADP report came in above 800k. It is worth noting, however, that the ADP report and the NFP report diverge sharply. Suffice it to mention the NFP reading of 199k for December against the aforementioned ADP of 800k. Of course, Omicron can be blamed for all of this, although if the slowdown in the labor market is so sharp and steady, one might expect the Fed to tone down a bit from its hawkish tone.

The DOE report today showed a drop in oil inventories, despite expectations of an increase. However, this had limited impact on prices. The market initially reacted very positively to reports that OPEC+ kept its policy unchanged, i.e. raising production by 400,000 bbl/d every month. Earlier, there were reports that OPEC+ may not want to significantly exceed prices at $90/bbl, which could lead to demand destruction. On the other hand, it is worth remembering that the cartel itself is struggling to restore production anyway. JP Morgan indicates that it is not out of the question that prices could reach $120 if the current problems in the oil market develop.

Rises on the EURUSD today are not only the result of a weak dollar, but also a reaction to inflation in the Eurozone. It came out for January at 5.1% y/y against expectations of a drop to 4.4% y/y from 5.0%. Despite limited wage growth in Europe, inflation is holding up. The key question is whether the ECB will acknowledge at tomorrow's meeting that inflation is nonetheless a current and long-term concern. EURUSD breaks through the 1.1300 level.

Natural gas futures are trading almost 12% higher today on the latest forecasts that point to a frigid first half of February, further highlighting concerns over the energy commodity shortage. Gas production in Oklahoma is down 17% today, with frosts also threatening production in Texas. According to Commodity Weather Group, the frost could last from February 12 to 16. The cold snap could reduce gas production, which is already reaching record export levels. It is worth remembering that last year the frost led to damage to infrastructure, which meant that places where gas is relatively plentiful had problems receiving it. Gas prices rose in January/February by about 30% last year, before seasonal adjustment.

It's quiet on Wall Street today. The Nasdaq gains just 0.1%, while the S&P 500 is up 0.5%. Brilliant results from Alphabet and AMD. On the other hand, PayPal's results were weak.