Selloff in equities stabilizes, with the S&P 500 and Nasdaq closing the day with minor losses only. US and European stock futures turned positive in the overnight trading session, hinting at consolidation before the weekly closing bell.
Yet, uncertainties persist as investors got unsettled with the latest FOMC minutes this week. We knew the Fed wouldn’t wait much longer before hiking the interest rates but the plan of reducing the size of the balance sheet almost simultaneously came a slap in the market’s face, as investors would normally expect a 12–24-month time gap between the two. As a result, the hawkish shift is real, and the worry of seeing the Fed go full blast into an aggressive tightening cycle is of course a sudden wake-up from a wild all-you-can-drink night out.
Important for the mood today will be the US jobs data. On Wednesday, the ADP report revealed a much better than expected number with a print of 800’000 new private jobs in December. Today, the NFP is expected to reveal that the US economy added 400’000 new nonfarm jobs. But the jobs data doesn’t matter much for the Fed policy expectations right now, what matters for the Fed is inflation.
Therefore, a low figure, around 100-200K, wouldn’t change the direction the Fed is preparing to take. However, a strong NFP print, and a beat on unemployment rate, have the power of boosting the Fed hawks, on the idea that the US jobs market no longer needs the Fed’s support, and the Fed could pull away support faster if it believes that there is no harm for the jobs leg of the equation. In this sense, a strong jobs data could wreak havoc in risk markets. Remember, investors like good data only and if only it boosts asset prices, and when it doesn’t, they mourn.
European inflation still transitory?
Europe will announce its latest consumer inflation figure today. Yesterday, the producer price inflation came a touch higher than expected, at 23.7% year-on-year versus 22.9% expected by analysts. The expectation for consumer inflation is a slight retreat from 4.9% mark. But, if there is a surprise, I would expect a surprise to the upside.
The EURUSD remains flat near the 1.13 mark and the risks seem tilted to the downside due to the hawkish Fed expectations pressuring the greenback higher across the board. The ECB’s lack of reaction faced with the rising inflation and the fact that the European policymakers chose to wait for inflation to temper itself keeps the ECB hawks very much off the book for now. A read above the 5% mark will sure titillate the ECB hawks and get Christine Lagarde a step closer to accept that inflation may not be transitory.
Bitcoin hit by global risk appetite & shutdown in Kazakhstan
Selloff in Bitcoin intensifies with the lack of risk appetite and the internet shutdown in Kazakhstan due to the mounting social unrest. Kazakhstan is one of the biggest power houses for Bitcoin miners. Last year, it became the world’s largest mining centers after the United States, so the internet shutdown in Kazakhstan hit Bitcoin’s computational power.
The coin is now ready to test the $40K psychological support, which may not bring in the dip buyers just yet, as the prospects of a tighter monetary policy will likely weigh on the mood. For now, Bitcoin is acting as a high-beta asset, it trades parallel to the risk appetite. Therefore, the meltdown could continue if yields trend higher – which is the base case scenario.
