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Weltschmerz…The governor of the Bank of England, Andrew Bailey, says we can do our bit to help to battle rising inflation by not asking for wage increases. Coming from someone who’s been sleeping at the controls for the last 18 months, that is not exactly helpful. How about doing your job? By which I mean getting a grip on inflation before it sets in – which would have been to gently tighten last summer. Too bad that moment was lost. Can’t believe I actually would like Mark Carney back.

After hiking rates yesterday to 0.5%, markets now see the Bank of England raising rates to 1.5% by August, which does not square with the statement from the MPC in my view…certainly the four 50bps voters indicate willingness to get on with the job but I don’t think the policymakers really want to see rates rise as aggressively as that. The yield on 10-year gilts rose above 1.4%, the highest since November 2018. This morning GBPUSD has just eased back from yesterday’s two week high.

The European Central Bank has also suddenly woken up to the threat of inflation. No one saw it coming…! Whilst the statement was a copy and paste job, there was hawkishness in the press conference with Christine Lagarde. In fact, it looks almost certain that the ECB head was preparing markets for an abrupt turn in forward guidance coming at the March meeting. Lagarde reiterated that ECB won’t hike rates until net bond purchases have ended…but on current guidance it is still planning to be net buyer of €20bn from Oct… clearly doesn’t square with the market pricing and would require big shift in March statement. Likely then that APP ends in June, allowing first hike either then or in September.

Markets moved to price in 20bps ECB rate hike by September vs 10bps prior to those comments; 10bps by June, and 50bps by December. Huge move in the euro, with EURUSD surging almost two big figures to its highest level since the middle of January. Clear break in the downward trend with a bullish MACD crossover seen.
Sources post-meeting underlined the hawkish shift, saying ECB is preparing for March policy recalibration; sensible not to exclude a 2022 hike; many policymakers were pressing to change policy at this week’s meeting. The ECB has shifted, hawks in the ascendancy at last.

Earnings bombs continue to be dropped on Wall Street: last night it was the turn of Amazon and Snap and some more crazy after-hours moves. AZMN leapt 15%, having declined almost 8% in the prior session, after headline earnings per share beat expectations. But dial down into the numbers and I don’t think they look so hot: operating income decreased to $3.5bn in the fourth quarter from $6.9bn in the fourth quarter of 2020 – the headline numbers being massively flattered by its Rivian investment. This one-off accounting trick was responsible for 82.5% of Amazon’s net income, which doubled to $14.3bn from $7.2bn a year ago. Big increase in staff costs and lower guidance for the current quarter; not exactly a blowout, confidence-inspiring earnings report. Higher costs rarely get marked down and again this is the case. Revenue growth slowed to a puny 9%. I’d place this more in the Meta (FB) and Netflix (NFLX) camps than those of Apple (AAPL) and Alphabet (GOOGL).

Snap Inc (SNAP) shares surged 60% in after-hours trading after it posted its first-ever profitable quarter. It had been down 24% over the session before on Meta’s woes. Snap is a competitor for eyes…seems to be winning share with DAUs up 2m. Markets are trying to make sense of these wildly divergent earnings from big tech. If you’re seeing these kind of gigantic moves in the largest mega caps it’s not a functioning market… which betrays the total dislocation created central banks which they’re now trying to unwind = bubble pricking?

Facebook declined 26% – one of the biggest market cap wipe-outs in history – scrubbing something like 25 points from the S&P and around 180 points from the Nasdaq 100. The Nasdaq Composite fell 3.7% to 13,878.82, its worst day since September 2020. Facebook woes creating big losses elsewhere – everyone is long FB. It’s also a confidence thing. The S&P 500 dropped almost two-and-a-half percent. European stock markets have had a mixed open at the start of trade on Friday. Banks at highest since 2018. The FTSE 100 rallied half of one percent to 7,600 with the help of the oil majors.

Heads up on today’s US jobs report – which is expected to be a bit of stinker. ADP was a big miss and officials have already said they think it will be weak. Maybe 100k. Look to wage growth.


• IHS Markit US services PMI: Technology and Consumer Services post falling activity at start of 2022; Healthcare and Financials register fastest expansions in January; Industrials sees near-stagnation in output.
• US ISM services PMI: headline down to 59.9 vs 68.3 previous and 71.0 expected. Employment and new orders components also down…all pointing to slowing growth; factory orders also weaker in a separate release. Inflation is easing a touch though with Prices Index registering 82.3 percent, down 1.6 percentage points from the seasonally adjusted December figure of 83.9 percent.
• US productivity gains of +6.6% were ahead of forecasts for +3.2%, unit labour costs not as high as expected as a result…good sign for Fed re the wage price spiral fears

Oil top? Not yet is the resounding answer – awaiting the MACD for confirmation but it is proving elusive. WTI futures have risen above $91 a barrel. The US has warned of a false flag invasion by Russia.

Oil Chart 04.02.2022

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