Morning Minutes

Climbing Crude, Hot Housing, and Nonfarm Payrolls Preview




US index futures are mixed this morning as stocks struggle to regain their footing following yesterday’s afternoon selloff. Dow futures are up 0.2% while NASDAQ futures are down 0.4%. Fed minutes, which suggested that not only is the US central bank accelerating tapering and planning to raise interest rates this year, it is also starting to think about starting to shrink its balance sheet, sparked a stampede out of technology/communications stocks and small cap stocks which sent the NASDAQ and the Russell 2000 both down 3.3% yesterday, compared with a 1.0% decline for the Dow. Overseas markets also have been retreating overnight with the Nikkei sliding 2.9%, the Dax dropping 1.0% and the FTSE falling 0.5%.

The combination of rising inflation and a potentially more hawkish Fed has US treasury yields on the rise with the 10-year rate approaching 1.75%. This has boosted the US Dollar, particular against metals with copper and gold both down 1.8%, silver down 4.75% and platinum down 3.7%. Cryptocurrencies are also getting rocked by this defensive shift in sentiment with Ethereum plunging 6.3% and Bitcoin falling another 2.5%.

Energy markets are mixed today. Between additional US inventory drawdowns and OPEC+ staying the course on supply increases, WTI crude oil is up 2.2% today, approaching $80.00/bbl. Natural gas, on the other hand, is down 0.4% ahead of today’s weekly storage report where last week’s warmer temperatures in consuming regions are expected to lead to a smaller seasonal weekly drawdown (-54 BCF vs previous – 136 BCF).

Over the last several weeks, we have highlighted indicators of a hot housing market, at least in some places, including strong housing starts and house price numbers, and their impact on lumber prices plus the homebuilding and forest products sectors. More evidence of hot housing came out today as the Toronto Real Estate Board announced record home sales of 121K in 2021, up 28% from 2020 and a 17.8% increase in the average selling price. In another sign of a strong economy north of the border, Canada posted a stronger than expected trade surplus for November ($3.1B vs street $2.0B).

Tomorrow brings the monthly US nonfarm payrolls and Canada employment reports. The US employment numbers out so far have been mixed with yesterday’s strong ADP payrolls (807K vs street 400K) offset by today’s worse than expected weekly jobless claims number (207K vs street 197K). Investors are expecting increases of 400K for US nonfarm payrolls and 27K for Canada jobs. Just as important could be the wage inflation numbers with investors expecting US hourly wage increases to slow to 4.1% from 4.8% last month, and ready to compare Canadian wage growth with last months 3.0% reading.

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Colin Cieszynski, Chief Market Strategist

Colin Cieszynski, CFA, CMT
Chief Market Strategist
+1 (647) 282-4428

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