Yesterday was, again, a fantastic day of trading for equities, as the less hawkish than expected tone from the European Central Bank (ECB) and the Bank of England (BoE) meetings joined the optimistic vibes from the Federal Reserve (Fed) Chair Jerome Powell’s ‘disinflationary process’ mention a day before, and all that combined with Facebook’s best rally in almost a decade painted the market in the green.
The S&P500 gained around 1.50%. Nasdaq 100 jumped more than 3.5% and entered bull market as Meta jumped more than 23%.
But today will probably not be as fantastic as yesterday, as Apple, Amazon and Google announced earnings after the bell yesterday, and they all disappointed.
So it’s not surprising that the US futures are in the red this morning, and Nasdaq futures are leading losses.
Nasdaq, which freshly stepped into the bull market yesterday, may not stay there long, at least in the very short run.
The tech stocks, at least the largest ones, have had a mixed quarter. In summary, Tesla, Netflix and Facebook did well, while Microsoft, Apple, Amazon and Google disappointed.
Is this balance enough to keep Nasdaq in a positive trend? It might not be. And the Fed expectations alone, especially given that they are not necessarily based on the full picture, but only on the half of the picture may not suffice to keep this rally going. Because it looks like investors are looking at the three little pigs happily playing in their little houses, and no one sees the wolf, that’s hidden behind the tree.
Could the US jobs data cheer up investors?
Today, the again-important US jobs data will either further fuel the Fed doves, or bring investors back on earth.
The Fed still thinks that the US jobs market, especially the wages growth remains too robust to declare victory on inflation.
So, besides the NFP data and the unemployment rate – which will in all cases remain at multi–decade lows, the wages growth will likely be decisive for defining the market mood.
A sufficiently soft jobs report could temper the earnings-triggered weakness.
Two dovish 50bp hikes from ECB and BoE
We knew that the BoE wouldn’t sound aggressively hawkish, when it announced a 50bp hike yesterday. A rate hike was necessary to fight Britain’s double-digit inflation, but obviously, the weak economic fundamentals, the horrifying political and social picture and the tumbling housing markets due to soaring mortgage rates could convince even the most hawkish of the BoE hawks to soften her tone, and vote for a 50bp, instead of a 75bp hike.
Plus, the BoE abandoned the word ‘forcefully’ from its forward guidance, hence investors now bet that the BoE’s tightening cycle will end soon.
So, shorting the pound was a no brainer yesterday. Cable sank into the bearish consolidation zone after pulling out the major 38.2% Fibonacci support on the year-to-date rally. The pair could further extend losses to 1.2150, and to 1.2080 – which are the next important Fibonacci levels, but the selloff may not be dramatic, simply because the US dollar is under the pressure of the dovish Fed expectations… hap-py-ly!
In mainland Europe, the rate decision was a bit more surprising to me. The ECB also raised the rates by 50bp, as broadly expected, BUT Christine Lagarde sounded much more contained than she did back in December.
Back in December, she was throwing away that the ECB will hike by 50bp, then another 50bp, then another 50bp, then another… until inflation is down. But yesterday, Lagarde said that the ECB ‘intends’ to raise by another 50bp next meeting, and that they will see.
What happened to the other 50bp hikes?
Well, it apparently happened that Christine’s colleagues didn’t like her language much, and it felt like she had been warned to not give that kind of guidance.
Whatever it was, the colleagues’ pressure, or easing inflation, or even the softening Fed tone, Lagarde sounded much less aggressive yesterday.
The EURUSD fell after having traded above the 1.10 mark as Powell dared pronouncing the word ‘disinflation’ just a couple of hours before that.
After recording more than a 15% rally since September, the euro could take a pause and consolidate gains.
But I believe that the euro’s recovery hasn’t ended just yet, as we see the end of the tunnel for the Fed – as the Fed rates approach the 5% mark, while we don’t yet see the end of the tightening tunnel for the ECB.
