US Non-Farm Payroll: Will Oil’s Momentum Survive?



US non-farm payrolls

US (VFINX) (VOO) non-farm payrolls rose 178,000 in November 2016, according to the U.S. Bureau of Labor Statistics’ report on December 2, 2016. The expectation had been for a rise of 177,000.

The slightly higher-than-expected payroll number could firm up the probability of a Federal Reserve interest rate hike this month. It suggests that the US economic (VFINX) (VOO) recovery is intact, warranting a rate hike.

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US jobs data impact crude oil

The US payroll number is one of the most important economic data points affecting interest rate decisions. The market’s expectation of a rate hike following the news could lead to further rises in the US dollar (UUP).

On December 2, 2016, the US dollar rose 0.7% following the jobs report. This rise could have a negative impact on crude oil prices. However, a strong labor market and a strong economy could mean more crude oil demand, which could support crude oil prices.

US Dollar Index and crude oil

In the past five trading sessions, the correlation between crude oil prices and the US dollar was 74.9%. The correlation was a positive one. It didn’t indicate the dollar’s adverse impact on crude oil prices. 

However, a weaker dollar makes crude oil cheaper for oil-importing countries, as it boosts prices. The opposite is also true. Last week’s high positive correlation was coincidental on account of the short period of analysis.

The evolution of trends in employment data is an important factor. It can directly or indirectly impact crude oil prices in more than one way.

Impact on energy ETFs

Energy ETFs are also impacted by economic data and the relationship between crude oil prices (UWTI) (USO) (OIIL) (USL) (SCO) (DWTI) (UCO) and the US Dollar Index. These ETFs include the Direxion Daily Energy Bear 3X ETF (ERY), the First Trust Energy AlphaDEX ETF (FXN), the United States Brent Oil ETF (BNO), the Energy Select Sector SPDR ETF (XLE), and the United States Oil ETF (USO).

In the next article, we’ll discuss the impact of crude oil prices on the S&P 500 Index.


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