US equities had another hectic trading session on Thursday. America took over a bearish market from the Europeans, and news that China locks down 21 million people in Chengdu further stressed investors and sent the S&P 500 to a fresh low since July.
The index came very close to the major 61.8% Fibonacci retracement on the summer rally, near 3900 mark. Then, dipbuyers came in to send the index 0.30% higher at the close. The Dow and Nasdaq tipped a toe below their 61.8% retracement as well, but managed to rebound to close the session higher than this important technical level. The Dow closed in the positive, while Nasdaq ended the session near flat.
All eyes on NFPs
All eyes are on the US jobs data today- The US is expected to have added around 300’000 new nonfarm jobs in August. For the past four months, the NFP prints surprised the market with higher-than-expected job additions. And last month’s surprise was relatively big, as the NFP printed a figure above half a million jobs, more than twice the analyst expectations.
Another strong NFP print will guarantee a 75bp hike in FOMC’s September meeting.
And it is well possible. The jobless claims fell to the lowest levels in the past two months last week, and the latest ISM survey showed a strong surge in employment, from below 50, the contraction zone to above 54.
Presently, investors are braced for another strong NFP read, and activity on fed funds futures gives around 75% chance for a 75bp hike in September. We could see this probability spike higher in case of strong NFP data – which would mean higher US yields, a further advance in the US dollar, and some more negative pressure on stock valuations.
But, if today’s NFP print is in line or ideally softer-than-expected – as the Federal Reserve (Fed) would like it to be, then we could see a certain relief in the US yields, a rebound in equity markets and hopefully a downside correction in the dollar before the weekly closing bell.
Because the US dollar strength is getting out of control. The USDJPY advanced past the 140 psychological mark for the first time in almost 25 years. The dollar already appreciated by more than 20% against the Japanese yen this year and the yen has more to weaken, given the divergence between the increasingly more hawkish Fed, and quite relaxed Bank of Japan (BoJ).
The EURUSD, on the other hand, is again below parity, despite the increased pricing of a 75bp hike from the European Central Bank (ECB) this month, as well.
A deeper drop to parity has also become a realistic, and the base case scenario for Cable, which is now testing the 1.15 mark to the downside.
The FTSE 100 took a dive along with its European and American peers since the summer peak, but the index slid around 6%, while the S&P500 dropped almost 10%, as many big caps in the FTSE are energy and mining companies, and most of their revenues are denominated in US dollars.
Unfortunately, we can’t say the same for the FTSE 250, where the British mid-caps are increasingly under the pressure of soaring inflation, weakening pound and the prolonged political uncertainty.
Taking the battle to the technology field
Nvidia slumped more than 7% as the US government’s asked Nvidia and AMD to stop selling A100 and H100 chips to China, including Hong Kong and to Russia, unless they are granted licenses by the US government.
Why? Because Chinese and Russian organizations use the relatively cost competitive chips from Nvidia and others for their AI and military applications. That includes scanning satellite imagery for weapon bases or intelligence gathering. Therefore, it’s normal that with the war in Ukraine, the US wants to keep its chips to itself.
But obviously, that means trouble for Nvidia which was planning to sell $400 million worth of chips to China in the 3Q.
AMD’s stock also saw a decent selloff, but AMD could limit losses to 3% yesterday, as the company said that the measures shouldn’t have a material impact on its business.
Now, the US action doesn’t stop here. It is also said that Biden is willing to ban the exports of tools that are sent to the factories of SMIC, Semiconductor Manufacturing International Corp., a Chinese chipmaker, to prevent them from building chips smaller than 14 nanometer.
This means, the US is taking the war to the technology field.
