US Economy: Job Growth Slows in December 2019, Oil Prices Fall Amid Cooling Geopolitical Tensions

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 US Economy: Job Growth Slows in December 2019, Oil Prices Fall Amid Cooling Geopolitical Tensions
                                 

After touching record high levels amid hopes of easing tensions between the US and Iran, the US stocks closed the trading session lower on 10th January 2020 (Friday).

The Dow Jones Industrial Average ended the trading session at 28,823.77, with a fall of 0.46 per cent or 133.13 points. In addition, the S&P 500 Index and the Nasdaq Composite Index slipped by 0.29 per cent and 0.27 per cent, respectively on Friday.

But what made the US stocks plunge on Friday?

The stocks eased from their record high levels following the release of weaker-than-expected jobs data for December 2019. The disappointing data weighed on the US stocks, and the US dollar also plunged by about 0.25 per cent as expectations of an interest rate cut this year by the US Fed increased slightly.

ASX also retreats from record highs, with S&P ASX 200 settling in at 6903.7, down 25.3 points.

US Job Growth Slows in December 2019

In a news release on Friday, the US Department of Labor reported the employment situation of the country in December 2019. The Department notified that the total nonfarm payroll employment increased by 145,000 in December, while the unemployment rate stayed at 3.5 per cent.

Although, the unemployment rate matched its lowest level in 50 years, the rise in the total nonfarm payroll employment was below the market expectations of 160,000 jobs.

The unemployment rates among the major worker groups were 3.1 per cent for adult men, 3.2 per cent for adult women, 12.6 per cent for teenagers, 3.2 per cent for Whites, 5.9 per cent for Blacks, 2.5 per cent for Asians and 4.2 per cent for Hispanics.

The Department reported that the payroll employment increased by about 2.1 million in 2019, below a rise of 2.7 million in 2018.

In addition, the wages grew modestly by 2.9 per cent in December 2019, marking its smallest gain since July 2018.

On the positive side, for the first time in a decade, women surpassed men to retain the majority of U.S. jobs, with women holding 20.04 per cent jobs in December 2019.

Though the jobs data for December 2019 was not so promising, the market experts expect the consumer spending to improve in 2020, driven by improvement in wages and steady job gains.

A Pause in US-Iran Conflict Plummets Oil Prices

The easing tensions between the US and Iran eased the oil prices on Monday, with the global benchmark Brent crude plunging to about $64.85 per barrel, after touching a record level of more than $70 per barrel last week.

The slump in oil prices occurred as Iran and the US stepped back from the verge of direct conflict.

Besides this, the market experts anticipate a period of prolonged confrontation between the two countries.

Recollecting incidents, the US drone strike that killed Qasem Soleimani - Iran’s military commander, sparked conflict between the two parties last week. Following the strike, Tehran took the path of ballistic missile attacks at the US troops to retaliate.

Although the market experts were expecting a further retaliation of conflict, the US President confirmed no retaliation to missile attacks last week. This led to a significant surge in the equity markets on 9th January 2020.

Though a pause in the US-Iran tensions has reduced the market volatility, the risk of an escalation of conflict continues to remain a cause of concern.

This week geopolitical tension will remain a key focus as the proposed trade deal between the US and China is likely to be signed on Wednesday (15th January 2020). The planned trade deal is anticipated to boost the consumer confidence and business investments in 2020.

US Fed Unlikely to Raise Interest Rates

Amidst the current scenario, the market experts believe that the US Federal Reserve is unlikely to raise the interest rates in the near term. Though the chances of a rate cut have improved slightly after the weaker jobs data, a rise in interest rates is highly unexpected.

To recall, the US Fed made three reductions in interest rates in 2019 to stimulate the economy, while the US President lobbied for larger deductions.

The December jobs data validates that the US Fed will stay away from increasing interest rates and will sustain its low interest rate policy in 2020 ahead. However, the Fed might reduce rates in the middle of the year to bolster economic growth.


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