Last week’s US Payrolls report for December came in a little weaker than expected with some minor downward revisions for previous months. These figures should not be seen in isolation but as part of a trend. While hiring cooled somewhat the key takeaway is that 2019 marks the tenth straight year of job gains with unemployment standing at a 50-year low. Some commentators expressed disappointment that average hourly wages rose by just under 3%. However, this at least matches inflation with the greatest gains being registered among blue collar workers. There may yet be a pick-up in pay in the coming months given the tightness in the labour market.
The Dow Jones briefly nudged above 29,000 for the first time. It was, however, a weak attempt and the rally fizzled out. While record highs make for good headlines we are hoping for a period of respite. Various technical gauges are registering an overbought position meaning that prices have risen too far, too fast. While a decline is not always a pre-requisite in forming a base for future rallies, we would at least like to see a period of recess for consolidation. The healthiest market moves are those with a 2-steps forward, 1-step back pattern, coupled with an occasional purge to skim off the froth of speculation. It is reminiscent of the dance routine for the tango where a series of decisive strides are followed by a side-step, a tentative pause, then back into action once more.
In the meantime it appears that tensions in the Middle East have de-escalated somewhat following the shock admission by Iran that they had shot down a passenger jet. It is unlikely that the hawks in the regime will be in any mood to make belligerent moves from here, especially with public demonstrations on their own doorstep. Both gold and energy prices have declined from their highs as a result. Next week sees the annual gathering in Davos of the World Economic Forum so this will form the theme of our forthcoming blog.
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