Market Talk: What’s up today? | Swissquote

US inflation came in line with expectations. The kneejerk market reaction to the data was surprisingly negative, but the major US stock indices extended rally, while the US dollar dropped sharply.

The S&P500 ended the session at a very important technical level – the index is now testing the ceiling of the 2022 bearish trend and the 200-DMA to the upside.

The 200-DMA has not been broken since April 2022, and has, so far, acted as a sign to sell the top. It could take more (…better-than-expected earnings) to clear resistance around 3990-4000 range.

From now, investors’ focus will shift to earnings. According to FactSet, the S&P500 companies could post earnings growth of -4.1% for the Q4. Energy companies and tech stocks are an exception to this, of course. Energy companies will likely reveal another excellent quarter due to high energy prices, while tech stocks will likely deliver their second straight quarter of negative growth, with a decent 9.5% contraction expected across the sector.

But don’t forget that high expectations are difficult to beat, while low expectations are easier to beat, and the prices move regarding where the results fall compared to expectations.

Today, big US banks including JP Morgan, Citigroup, Bank of New York, Bank of America and Wells Fargo will reveal their Q4 results.

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Today is the most important day of the trading week, in terms of economic data release, as the US will reveal its latest CPI update, and it could be a make-or-break moment for the market sentiment.

Consumer price inflation in the US probably eased to 6.5%, from 7.1% printed a month earlier. Core inflation fell to 6% at last release, from a peak of 6.6% printed for October, and is expected to fall further to 5.7% y-o-y.

US equities extended gains yesterday, on hope that softening inflation will further boost the Fed doves.

Today’s US inflation data will help move things, to one side or the other. But keep in mind that there is room for decent hawkish pricing given that the money markets still price that the US interest rates will top around 4.9%, while the Fed officials are struggling to convince investors that they will go above 5%.

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Good news is that Asian stocks entered bull market. Bad news is that the Federal Reserve (Fed) President Jerome Powell could hammer the post-NFP stock rally in US stocks. Sentiment is mixed and investors are tense before Powell’s speech, and Thursday’s US inflation data.

The S&P500 was unable to extend gains above the 3900, rapidly started erasing early-session gains and ended the session 0.08% lower. Nasdaq also gave back early-session gains, though closed the session 0.60% higher.

US equity futures are in the negative this morning, as the King of market disappointment, the Fed Chair Jerome Powell, will be speaking at an event in Stockholm today, and he will probably not pop the champagne just because the wages grew less than expected last month, especially when you think that the US economy added a near record 4.5 million jobs last year, and that the unemployment rate fell to 3.5%.

In the FX, the US dollar index remains under a decent selling pressure, as a result of the dovish Fed expectations since last Friday’s US jobs data.

The EURUSD advanced to 1.0760 yesterday, Cable flirted with 1.22 this morning, and gold consolidates gains.

In energy, crude oil remains under pressure despite the Chinese reopening talk, and the falling Russian supply. We see that the European sanctions weigh on Russian oil supply, as the 4-week average shipments decline despite a small gain posted last week. That means that the lower Russian supply will be another supportive factor of oil prices.

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Friday’s jobs data in the US, and more specifically, the market reaction to Friday’s jobs data helped stock markets to record their best boost since more than a month on Friday.

However, Friday’s jobs report was rather… mixed, and spurred a lot of discussions and debates regarding whether the data was soft enough to convince the Federal Reserve (Fed) officials that the inflation battle is over, or it was strong enough to make them further scratch their heads.

US markets, however, gave a strong positive reaction to Friday’s jobs data. Both the US 2 and 10-year yields fell more than 4% after the data, pulling the US dollar index lower along with them. The S&P500 jumped around 2.30%, while Nasdaq 100 rallied near 2.80%.

Gold reached our $1880 per ounce medium term target, boosted by lower US yields, which made the opportunity cost of holding the non-interest-bearing gold lower, and increased appetite.

Activity on Fed funds futures now price in a 25bp hike at the next FOMC meeting at around 75%, but the Fed has not hesitated to disappoint markets since last year to cool down the optimism and send the stocks to turmoil. So the dovish pricing in Fed expectations make the latest gains a bit bitter-sweet, as the slightest news, or hints that the Fed would not step back from its hawkish tone could vanish the latest rally.

So, this week’s US inflation data will be key in either giving the bulls a further boost or bringing back the bears with revenge.

Jerome Powell will speak on Tuesday, and the US CPI data will be released on Thursday.

On the corporate calendar, the earnings season will kick off with big bank earnings due Friday.

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Yesterday’s US ADP print was too strong to please the Fed, as the data revealed way stronger than expected private job additions in December, posting 235’000 new private jobs last month, versus only around 150’000 expected by analysts.

Today’s NFP read is also expected to reveal around 200’000 new nonfarm jobs in the US - quite a strong figure when you think that recession could be around the corner in the US.

Therefore, stronger-than-expected jobs data will certainly boost inflation expectations, bring the Fed hawks back to the market, send the US yields and the dollar higher, and stocks lower.

Pricing in Fed funds futures still points at a 25bp hike in Fed’s next monetary policy meeting, meaning that we could rapidly see the pricing turn in favour of a 50bp in case of strong jobs data.

In the FX, Cable slipped below 1.20 – and is even testing 1.19 at the time of video shooting. The EURUSD is drilling below the positive trend base that’s building since November, and is preparing to test the 1.05 to the downside. US jobs data, and the USD reaction will likely determine the mood into the weekly closing bell.

In individual news, Amazon fires 18’000, Salesforce cuts 10% of workforce, Bed, Bath and Beyond and Genesis warned of bankruptcy, as Silvergate saw $8 billion leave after the FTX collapse.

Bitcoin remains stoic to news, while Grayscale’s Bitcoin trust trades with 45% discount to its NAV.

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Released yesterday, the FOMC minutes were hawkish enough to get the S&P500 erase early gains, but not hawkish enough to get the index to close in the red. The index closed the session 0.75% higher. Nasdaq gained 0.50%.

Today, we will see what the ADP report tells about new hirings in December. Analysts believe that the US economy may have added around 150’000 new private jobs last month.

Note that the latter is not a good indication regarding what’s to come on Friday. Last month, the ADP printed a weak 127’000 figure, while the NFP came in at 263’000. Therefore, even the avalanche of layoff news from big companies, and a soft ADP print may not be enough convince that the US jobs market is cooling.

In energy, weaker nat gas prices, combined to the past few days’ recession fears, and news that OPEC output increased in December thanks to the recovery in Nigerian supply from outages – despite the OPEC+ will to cut output to keep prices sustained - pulled the price of American crude 5% lower yesterday.

In the FX, the Australian dollar is surfing on the positive Chinese vibes, while the US dollar index couldn’t extent the early week gains, and we are about to see a death cross formation on the daily chart.

The EURUSD is bid around 1.0550, as Cable sees buying interest below 1.20 despite its worse economic fundamentals compared to other G7 economies.

One of the most popular trades of the moment is long the Japanese yen against EUR, USD and pound.

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European investors got an energy boost from lower inflation reads, and the falling nat gas futures, but US investors didn’t follow up on the cheery market mood.

However, US sovereign bonds gained yesterday as an indication that the latest market moves were backed by recession fears, rather than hawkish Federal Reserve (Fed) expectations…

And if the first trading day of the year is any indication, we could see the holy negative correlation between stocks and bonds come back in 2023. This is what many investors think will happen. The risk-off investors will likely continue exiting stocks on profit recession – and not on hawkish Fed expectations, and they could go back to bonds and to gold instead.

Due today, the ISM manufacturing index will reveal if and how fast US manufacturing contracted last month. If yesterday’s PMI is any hint, we could see a fastening contraction in ISM manufacturing, which would then boost recession worries, hit the stocks, but not necessarily the bonds and gold.

Also, JOLTS data will show if, and by how much the US job openings fell in November.

But regardless of the ISM data, and the US job openings, the FOMC minutes will likely confirm that the Fed remains serious about further tightening policy, even if it slows the pace of interest rate hikes. Remember, if the Fed decided to go slower on its rate hikes, it’s to be able to go higher! And the more resilient the US economy and the US jobs market, the more eager the Fed will be to continue its journey north…

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The New Year started with the IMF Chief Georgieva warning that the global economy faces ‘a tough year, tougher than the year we leave behind’.

German PMI data pointed at a faster than expected contraction in manufacturing activity in December, while the European manufacturing PMI came in at 47.8, in line with expectations.

This being said, trading in European markets was rather optimistic on the first trading day of the year, as European nat gas futures eased on mild weather.

The US dollar index kicked off the year on a subdued note, letting the dollar-yen tip a toe below the 130 mark. The EURUSD however, couldn’t build on gains above the 1.07 mark, while Cable remained steady-ish a touch above its 200-DMA, which stands near 1.2030 level.

Gold jumped to $1843 per ounce despite the positive pressure on the yields recently, while oil remained offered into the 50-DMA, which stands a touch below the $81 per barrel mark.

Trading in Bitcoin remains boring.

On the economic data front, we will watch FOMC minutes, US jobs data, and OPEC meeting this week.

On individual stocks front, carmakers announce their Q4 deliveries. Tesla hit a fresh record, but the number of cars delivered last quarter fell short of expectations, while Rivian reportedly doubled production in the final quarter of 2022 to hit its 25’000 yearly target.

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Last year at this time, we were about to see Apple become the world’s first $3 trillion company. The S&P500 and Nasdaq were running from record to record, and no one imagined how bad the hangover would be.

Big Tech and chipmakers got shattered, war in Ukraine wreaked havoc in Europe and in the world.

Global energy prices sent inflation to the moon across the globe, while Bitcoin and cryptocurrencies came back to earth, with some big institutions failing to withstand the financial shock.

The US dollar gained, as the Fed raised rates. Others raised rates as well, but the dollar kept rising.

Finally, gold hasn’t been great in tempering inflation, but despite soaring yields, the yellow metal managed to recover yearly losses, and is even preparing to end the year around 1% higher than where it started in US dollar terms.

So voilà. Everything looked ugly this year, except for energy and the US dollar.

The most important take of the year is: the era of easy money ended, and ended for good. It means that the financial markets won’t look like anything we knew since the subprime crisis.

There is still plenty of cheap central bank liquidity waiting to be pulled back, therefore the situation may not get better before it gets worse in the first quarters of next year. Recession, inflation, stagflation will likely dominate headlines next year.

Happy New Year!