Oil hits highest price since 2014

Labor market update

The Labor Department released December job openings and job quits last week, with the numbers highlighting what continues to be what Federal Reserve Chairman Jerome Powell called “a historically tight labor market.” Job openings in December came in at 10.9 million, up by 150,000 from the month prior. December marks the seventh straight month in which job openings have remained above ten million, and the 10.9 million figure is just short of July 2021’s record of 11.1 million openings. Job quits fell by just over 160,000 from November’s record total, coming in at 4.3 million for the month of December.

In January employment news, the ADP employment for the first month of 2022 was released on Tuesday. The data showed that the U.S. lost 301,000 private-sector jobs in January, coming in well below analyst expectations of a 207,000-job gain. January marked the first decline in the private sector since December 2020 and had many thinking that the Bureau of Labor Statistics’ (BLS) nonfarm payrolls report would also be negative, or at least below expectations. The ADP report tracks nonfarm private employment, whereas the BLS’ report accounts for all workers. The BLS report released on Friday morning came as quite a surprise to many, as nonfarm payrolls in January increased by 467,000, smashing expectations of a 148,000-job gain. Leisure and hospitality led the way in hiring, with 151,000 hires. The professional and business services and retail sectors also saw large gains. On top of January’s large gain, December and November reports were also revised up, bringing the total gain for 2021 to 6.67 million. Despite the unexpected large gain for January, the unemployment rate did rise from 3.9% to 4%. Weekly initial jobless claims for the week ending January 29 totaled 238,000, just below the expectations of 245,000 claims.

FX update

Both the Bank of England (BOE) and the European Central Bank (ECB) released rate decisions last week but chose different paths. The BOE raised rates by 25 basis points, bringing the Bank Rate to 0.5%. Marking the first back-to-back rate hike from the Bank of England since 2004, four of the nine Monetary Policy Committee members wanted to increase rates by 50 basis points. On the other hand, the European Central Bank decided to keep interest rates unchanged despite pressure to act due to record inflation. ECB President Christine Lagarde maintained that the Bank expects inflation to decline throughout the course of 2022. USD weakened against both GBP and EUR last week.

China’s President Xi Jinping met with Russia’s President Vladimir Putin late last week, stating “that there are no forbidden areas of cooperation” between the two countries. At the meeting, the two leaders also agreed to a 30-year deal for Russia to supply gas to China via a new pipeline. USD also finished the week slightly down against RUB.

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Commodities update

WTI Crude rose above $90 per barrel for the first time since 2014 on Thursday. As pre-pandemic activities return, demand continues to increase while supply has been fairly steady. Earlier in the week, OPEC+ met and agreed to a previously scheduled output increase that will bring an additional 400,000 barrels per day back into the fold starting in March. In recent weeks, the United States and India, two of the largest oil consumers in the world, have indicated their desire for output reinforcements to stifle rising prices. However, OPEC+ seems to be standing their ground for the time being. Despite the output increase, many analysts expect the price of oil to continue to rise in the short term, as the boost in output will likely be drawing on OPEC+’s reserves. Crude oil finished the week at $92.31/bbl.

Elsewhere in commodities, U.S. natural gas (NYMEX Henry Hub) prices skyrocketed due to the expected winter storm in Texas. Similar weather last year left a significant number of Texans without power for days. Henry Hub finished the week at $4.57/million British thermal units (MMBTUs).

The week ahead

A busy week of economic data is ahead, highlighted by January CPI and February consumer sentiment index data. The market will certainly be keeping an eye on inflation after December’s rate jumped to 7%, the highest since June 1982.