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Stock markets in Europe are broadly weaker at the start of trade after something of a steadying for Wall Street following Wednesday’s capitulation for tech stocks. Minutes from the Fed’s December meeting have set the tone for a higher rate environment this year, something markets have been adjusting to anyway to a large extent. Today sees the US nonfarm payrolls data for December, which should cement the case for the Fed to be removing accommodation just as quickly as it introduced it at the start of the pandemic. 


The FTSE 100 was the top performer in the early European session as it traded steady around the 7,450 area after touching 7,530 earlier in the week, its best level since the pandemic started. Rio and BHP led the gainers.  Meanwhile shares in Frankfurt are off by around 0.3% at 16,000 for the DAX. Similar for the CAC in Paris. German industrial production figures were soft, falling 0.2% in November after gaining 2.8% in the prior month.


Wall Street was steadier on Thursday following Wednesday’s tech-led decline. Amid some more messy rotation the S&P 500 fell 0.1% and the Dow Jones was 0.5% lower. The Nasdaq dropped 0.1% and the small cap Russell 2000 was up 0.5%. Banks and energy did well, megacap tech was generally weaker – Apple declining 1.7%. Speculative, unprofitable long-growth type are still under pressure but maybe due a bounce. ARKK fell sharply at the open to $83 but finished the day lower by 0.6% at $85.58. Tesla declined 2%.  Looking at SPX, price action looks uneasy so close to the 50-day moving average, not even prepared to test it just yet and sitting around the 23.6% retracement of the rally from Oct.


Nonfarm payrolls today – expecting a big print that ought to cement FOMC views about the labour market being a lot closer to full employment. Notable from the minutes on Wednesday was the fact several participants thought the labour market was already at full employment and more thought it fast approaching that level.  Consensus is around 400k following the 210k in Nov, but ADP was +800k. I’d expect something like 600k to split the difference – seasonal factors are skewed to a much larger print and 4-week moving average of weekly unemployment claims has come down sharply. I think a strong report will be bullish for equities as investors have seemingly already adjust to Fed/market tightening, which leaves earnings growth key to offset multiple compression.


Modest flattening: Bond yields are moving still but shorter end doing the work to price for coming hikes, with the US 2yr approaching 0.9%, 10s holding about 1.7%.  European bond yields have also jumped lately with the 10yr German bund back to 0%, almost turning positive. Hard to see the ECB allowing this to take off further so no chance of rate hikes this year unless there is some much stronger growth & inflation than currently expected.


Elsewhere…Currency markets are steady ahead of the NFP as to be expected. GBPUSD is still consolidating and looking for direction either side of 1.3550. EURUSD continues to be anchored by 1.13 and trades in the 150-pip or so range it’s held since the end of Nov. Eyes on the December Eurozone PMI at 10am – expected at 4.7%, down from 4.9% a month before.


Crypto markets still taking a battering – Bitcoin taking a $40k handle at last after threatening to do so for the last week or more. Key support around the Sep low at $39,500, which I’d expect to be defended vigorously. A lot of buy orders at or just below $40k should keep it from this area. 


Oil enjoyed a big pump yesterday and is steady this morning. Front month WTI blew past $80, its highest since mid-Nov, with sentiment only one way. Unrest in Kazakhstan is bullish in the short-term but it’s more about the demand fundamentals for the global economy, which are also bullish. Doesn’t seem to be much in the way of $85 being retested. 

Oil Chart 07.01.2022

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