US wage growth adds to rate rise expectations and sends crypto lower

By Puja Sharma

The crypto world is still highly sensitive to central bank policy and has been pushed higher in the era of fast and easy money, so expectations of monetary tightening have spooked fans further.

• Inflation unease still hangs over financial markets
• Bitcoin’s fall accelerates following jobs report
• GameStop shares surge on NFT speculation

The headache of inflation shows little sign of easing for the US economy, with an air of uneasiness still hanging over financial markets at the end of the trading week following the release of the latest data on the labour market. The number of new jobs in December came in significantly lower than expected, with leisure, hospitality and retail struggling.

Wage growth continues to be the niggling pain threatening to turn into a severe migraine for policymakers who are keen to try and put a lid on soaring inflation. Average hourly earnings rose by 0.6% in December, higher than forecast and year-on-year earnings are up 5.8%. This reading comes even before the hit from Omicron took hold but with so many people isolated, it’s likely to make worker shortages even worse, potentially pushing up wages even further.

The realization has dawned on investors that the drug of cheap money is set to be withdrawn a lot sooner than the first forecast. The minutes of the latest Federal Reserve meeting indicated the likelihood of an earlier rate rise in 2022, and the starting gun being fired more quickly on a race to offload bonds from the bank’s balance sheet and this data will bolster these expectations.

The crypto world is still highly sensitive to central bank policy and has been pushed higher in the era of fast and easy money, so expectations of monetary tightening have spooked fans further. Bitcoin dropped by another 2% with the jobs report, accelerating the fall it’s experienced since the publication of the Fed’s minutes. Bitcoin has fallen back to $41.771, back at the level it languished at in September, and has fallen by more than 31% since its November high. Unrest in Kazakhstan, a centre of Bitcoin mining appears to have exacerbated the volatility and nervousness among investors.

Bitcoin’s fall hasn’t diminished demand for GameStop shares, which have soared on expectations the video game retailer is working on expanding its NFT marketplace and partnering with crypto companies to develop games on blockchains. With big brands from the realms of music and fashion entering the gaming space with their own NFTs, speculation is swirling about the prospects for the company. It seems the rollercoaster ride for GameStop is far from over, as traders pile into the company is yet another buying frenzy, sending shares up 18%.

This is a highly risky play given that the market for NFTs is so nascent, and many sought after assets today, could end up becoming worthless. On the London market mining stocks have been the top gainers with Rio Tinto,  Anglo American, BHP, Glencore and Antofagasta jostling for pole position on the FTSE 100 as copper and iron ore prices rose and expectations of a surge of demand for commodities in 2022 continue.

Inflation fears also appear to be affecting consumer goods companies and retailers today with B&M European Value Retail the top faller on the FTSE 100. The retailer had been a pandemic winner, with its stores based mainly in retail parks a popular choice for scrimping shoppers.  But concerns are growing that higher manufacturing and labour costs may also eat into margins. Although the discounter should benefit from a further consumer downgrade to cheaper products amid an income squeeze, sales of discretionary goods like homewares might take a hit. ‘