US equities rally on dovish Fed minutes

US stock market rally continued in the first week of 2018 while the ICE US dollar index fell on dovish Fed minutes and weaker than expected December jobs report. The SP 500 rose 2.6% and the ICE dollar index declined 0.4% for the week.

The SP 500 closed at record highs every session last week. It closed at a new record high Tuesday rising 0.8% as the final reading of the US manufacturing purchasing managers’ index for December was upgraded to 55.1 from a preliminary reading of 55.0. The broad market ended 0.7% higher at fresh record Friday as mixed data and weak jobs report supported the view Federal Reserve may not pursue as aggressive rate policy as indicated in the last policy meeting. Policy makers’ expectations for interest rates showed three rate hikes as median forecast for interest rate increases in 2018.

The ICE dollar index retreated in every session except Wednesday and Friday in the first week of 2018. It fell 0.5% Tuesday in the opening session of 2018, continuing a seven-day losing streak. The dollar index rebounded 0.4% on Wednesday as the ISM manufacturing index rose to 59.7% in December from 58.2 in November. The dollar rose 0.1% Friday as weak nonfarm payrolls report showed only 148 thousand new jobs were added in December instead of expected 190 thousand. Dollar ended higher despite a tepid rise in worker pay: average hourly earnings rose 2.5% in twelve months from December 2016 compared to 2.4% in November, reinforcing expectations The Fed may hike rates only twice in 2018 instead of three times as indicated in last meeting’s dot plot.

US and China inflation reports are the major economic events this week. China producer and consumer prices data are due Wednesday, and US inflation data will be released on Friday.