Strong U.S. Payrolls Support Rate Hike, but Sluggish Wages Remain a Concern

The U.S. Dollar rose against a basket of major currencies on Friday after government data showed the economy created more jobs than expected in November. While the rally was mostly driven by the headline number, gains were limited by average hourly earnings data that analysts said were disappointing.

March U.S. Dollar Index futures settled at 93.489, up 0.252 or +0.27%.

U.S. Non-Farm Payrolls rose by 228,000 in November. Economists had forecast payrolls rising by 198,000. Average Hourly Earnings rose five cents or 0.2 percent in November, but economists expected a 0.3 percent rise. The annual increase in wages was also weaker than forecast: the November figure came in at 2.5 percent versus a 2.7 percent expectation. The unemployment rate was unchanged at 4.1%.

The lack of wage pressure should not derail the Fed’s plans to raise rates next week, but it will certainly be a key topic of discussion as the central bank grapples with sluggish wages that reflect persistently low inflation.

Other U.S. Economic Reports

Preliminary University of Michigan Consumer Sentiment fell from an upwardly revised 98.5 to 96.8. It also came in below expectations. Preliminary University of Michigan Inflation Expectations jumped from 2.5% to 2.8%. Final Wholesale Inventories also improved.

Gold

Gold finished the week sharply lower. The catalyst behind the weakness was a stronger U.S. Dollar which was fueled by optimism over the progress of U.S. tax reform and a stronger-than-expected U.S. jobs report. Increased demand for risky assets also weighed on the market. The Senate also passed a stop-gap spending measure to continue funding the federal government.

Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil rallied on Friday, fueled by rising Chinese crude demand and threats of a strike in Africa’s largest oil exporter. However, the market still posted its biggest weekly loss in nearly two months.

In other news, this week’s U.S. rig count, an early indicator of future output, ticked up by two oil rigs to a total of 751, according to oilfield services firm Baker Hughes.

U.S. Equity Indexes

The major U.S. stock indexes close higher on Friday in reaction to a stronger-than-expected jobs report. The blue chip Dow and benchmark S&P 500 were underpinned by the healthcare sector which rose more than 1 percent. The NASDAQ Composite was supported by strength in Amazon, Netflix and Amazon.

This article was originally posted on FX Empire

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