Weekly Buzz: Red-hot US jobs market; oil’s wild ride

09 December 2022
9Dec22 Weekly Buzz 1

👷Good news for US workers, not-so-great news for the Fed 

The US’s latest labour market report showed that wages grew by 5.1% in November from a year earlier. That’s quicker than October’s 4.9% gain, and it came as a surprise to economists, who were expecting wage growth to slow. Employers also kept adding jobs in November: non-farm payrolls increased by 263,000, compared to expectations of 200,000.

What do higher wages mean?

The jobs market in the US remains strong despite rising interest rates and concerns that a recession could be looming. Higher wages would be welcome news for the average worker struggling to keep up with record-high inflation. But too-strong wages could contribute to inflation, since companies might raise prices to cover higher wages for their employees. And this is the opposite of what the Fed is hoping to see in its battle against inflation.

How have markets reacted to the jobs data?

Initial response to the data was muted. But better-than-expected services sector activity contributed to the S&P 500’s decline early this week, as this added to the evidence that the economy is stronger than the Fed would like. For now, all eyes are on the Fed’s meeting next week, where it’s still widely expected to dial back to a 50 basis point rate hike.

9Dec22 Weekly buzz 2

🎢Wild ride for oil 

Two big developments related to Russian oil came into effect on Monday:

It’s all part of the West’s plan to limit Russia’s war efforts in Ukraine. The crude oil ban covers more than two-thirds of Russian oil imports into the EU, while the price cap will prevent Western companies from importing or transporting Russian oil unless it’s below $60 USD a barrel.

What happens next?

That depends on how Russia reacts: it’s vowed not to accept the price cap and threatened to completely ban pipeline oil exports to the EU. If Russia goes through with those threats and cuts production, oil prices in Europe could rise, worsening inflation. That said, Europe has made significant progress in weaning itself off Russian energy.

Other factors could affect oil prices too: China loosening Covid-19 restrictions could raise its demand for oil. OPEC’s decision to raise or cut its output is likely to have an impact too. The cartel decided to stick to previously-announced production cuts at its most recent meeting, which gives it more time to assess the effects of the embargo and the price cap.

9dec22 weekly buzz 4

We couldn’t resist the AI craze this week so here’s a haiku on compound interest 

Credit: ChatGPT

Compound interest grows

Like a tree with deep roots strong

Rewards patience well

9dec22 weekly buzz 5

🎓Jargon buster: VIX (CBOE Volatility index)

Whenever markets are volatile, you often see mentions of the VIX – or the CBOE volatility index. Also known as the “fear gauge” for the US market, the VIX reflects investors’ views of future US stock market volatility. In other words, a spike in the VIX means that investors expect market volatility to increase within the next 30 days.

Generally, a VIX level of above 30 signals an environment of heightened uncertainty and investor fear, while a VIX value under 20 signals a more stable (and less stressful) period in the S&P 500.

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A distraction is something we do that moves us away from what we really want. And the opposite of distraction is traction, which is any action that moves us closer to our goals.

The key difference between distraction and traction is intent – in short, doing things with intent helps our time, money, and attention work towards our goals, helping us live the kind of life we want.

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