Yesterday has been a deep red day for the US equities, as the FOMC minutes hinted at earlier and a faster rate normalization path, and the reduction of the Fed’s balance sheet soon after the first rate hike. The extra hawkish element hammered the sentiment sending the US yields higher and the equities lower. The better-than-expected ADP data certainly gave an extra support to the Fed hawks.
The ADP data revealed that the US economy added more 800K new private jobs in December, twice the 400K expected by analysts, and as strong as the figures we used to see at the heart of the post-pandemic recovery last year. But helas, the strong data added to the hawkish Fed expectations, as it reinforced the Fed’s view that the US economy is close to a full employment and it’s time to move on.
We are now stepping into a period where good data is bad as it fuels the Fed hawks, and bad data is bad, as well, because it can’t fuel the Fed doves.
The US 2-year yield spiked above the 0.85%, as the 10-year yield advanced past the 1.70%, yet there is room for a further hawkish pricing on both ends, hence risk assets should fasten their seatbelts as the hawkish Fed becomes the major catalyzer of broad market pricing.
Nasdaq fell more than 3%, the S&P 500 retreated near 2% and the Dow gave back slightly more than 1%. The selloff continued in the US equity futures overnight and the ranking of the biggest losers confirms that the price action is obviously dominated by the hawkish Fed expectations and the fear of earlier and steeper rate normalization.
The steep rise in the US yields hit the appetite in gold, and the broader market selloff couldn’t bring investors on board for safety, and Bitcoin broke the December support line to the downside and tanked to $42K mark, also breaking another important Fibonacci support, the major 61.8% level on July – November rally. Doing so has been a stronger technical confirmation of the actual bearish trend, where the downside correction could $35-37K band.
Due today, the US unemployment claims should print another number near the pandemic lows, while the ISM services index should show a certain slowdown in December due to the omicron wave, but again, bad news could hardly get the Fed’s tone softer, so the data better be good for an improved mood.
