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The S&P500 traded lower for a third day, the US yields rebounded, as the US reached its debt ceiling yesterday.

Wow, Netflix

Netflix added nearly 7.7 million new subscribers last quarter, versus only around 4.5 mio expected by the market. Harry and Meghan, among other popular shows in the Q4 clearly did the trick. The share popped almost 10% higher in the afterhours trading.

Why not more? 

Because the earnings per share largely missed estimates due to a loss related to euro-denominated debt – as the euro rallied 10% from October to the end of the year. But the company’s profit margin still topped analysts’ expectations.

The results have been a relief for Netflix which was trading more than 3% down at yesterday’s close. We will likely see the recovery extend to $350 per share, the levels it was trading before the second big slump last year, in April, but the levels prior to last January slump, around $500 per share seem like a faraway dream.

Especially given that the early-year stock rally is set to gently fade away. The S&P 500 traded lower for the third straight day, having failed to clear a very critical resistance zone, above 4000 level, where the 200-DMA, and the ceiling of the 2022 bearish trend prevented investors from extending the rally into a new, bullish era, with no major justification on the company, or macroeconomic level.

In this sense, P&G hasn’t been as lucky as Netflix. Their sales fell 6% in Q4, after they raised prices 10%. Price increases for P&G products may have hit a critical point where customers are no longer willing to pay for

Mixed bag of news

The Federal Reserve (Fed) is not stepping back from its rate hike talk – despite easing inflation and easing activity – and the Fed officials keep repeating that the rates will go higher, and stay high for a long time.

Major banks and institutions agree that the US is faced with a mild recession.

In the meantime, the US jobs figures continue to look strong enough to justify more rate hikes from the Fed. Yesterday, the US jobless claims fell below 200’000 for the first time since last September, tempering news that Microsoft and Amazon scrap 28’000 jobs, together.

Where do these people go is anybody’s guess.

And if all this is not enough, the US reached its debt ceiling yesterday, and began using special measures to avoid a payments default. US treasury department is altering investments in two government-run funds for retirees - a move that will free enough cash to allow the US government to pay for its expenses until June. Then, we will see.

For now, there are no signs of agreement whatsoever between Republicans and Biden administration. Biden doesn’t want to cut spending.

In the FX 

The US dollar index remains under pressure.

The dollar-yen is better bid despite the data showing that inflation in Japan hit 4% in December, as expected.

The EURUSD remains bid below the 1.08 level, while Cable continues flirting with the 1.24 mark.

The euro-sterling is down to the 50 and 100-DMA levels as a result of a surprisingly stronger sterling this week.

Sterling’s strength is the result of a near-record wages growth, and inflation above 10%. But if you ask Mr. Bailey, two months of slowing inflation is ‘the beginning of a sign that a corner has been turned’.

It’s clearly overly optimistic when you think that inflation in Britain is still above 10%.

Worse, Bloomberg’s English Breakfast index is 20% higher on average compared to last year, as the tea bags cost 10% more, the butter block and eggs are 30% more expensive, while milk prices are up by 50%!

Either Mr. Bailey doesn’t eat the breakfast of an average Brit, or he simply doesn’t earn the average salary of a Brit…

Still, the Bank of England (BoE) is expected to hike the interest rates by 50bp at the next policy meeting, and that expectation is giving support to the pound.

In the Eurozone, however, Christine Lagarde sounds way more down to earth. She accepts that inflation around 9% is still ‘way too high’ for Europe and that the European Central Bank (ECB) should continue fighting it with more rate hikes.

A vision that the Swiss National Bank’s (SNB) Thomas Jordan shares, as well. More hikes are probably needed in Switzerland, he said, even though inflation is at a relatively low 2.8%.

A tighter SNB policy, combined with the inflation gap between Switzerland and the US, supports a further downside move in dollar-franc to 0.90 mark.

Market movers today

Data calendar for Friday is almost empty. We have only UK retail sales due in the morning and US existing home sales out in the afternoon.

ECB's Lagarde will again be on air from Davos but as she was also speaking yesterday, we do not expect much news.

Also two Fed speakers, Harker and Waller, will be on the wires today ahead of the quiet period that starts on Saturday.

The 60 second overview

ECB: Minutes from the December ECB meeting showed that 'a large number' of officials initially preferred at 75bp hike, but with the Governing Council eventually compromising on a smaller 50bp increase accompanied by hawkish rate guidance and start of QT. Hawkish comments from President Lagarde at the World Economic Forum in Davos suggested that ECB was determined to 'stay the course' and signalled further significant rate rises lie ahead to get inflation under control. She also highlighted that the economic outlook for euro area has improved and that this economic year should be better than feared. The hawkish comments sent the implied ECB peak rate pricing back to 3.4% and EUR/USD back above 1.08.

Norges Bank decision to leave policy rates unchanged at yesterday's meeting was the first G10 central bank (except Japan) to do so. The signal of 25bp March hike was maintained though. Our base case has been for the December hike to mark the final hike of the cycle. Meanwhile, with hard data keeping up better than expected, the recent easing of global financial conditions alongside the positive global demand shocks from China reopening and higher European real disposable incomes, conditions look increasingly set for a final 25bp hike in March.

US: The US Treasury began tapping two government-run retirement funds to avoid a default after the debt ceiling was hit, steps that should allow payments to continue until early June. Treasury Secretary Yellen urged Congress to boost the borrowing limit, though Republicans and Democrats show no signs of ending their stand-off.

Japan: Inflation reached 4% for the first time in more than four decades, with core inflation at 3% also hitting the highest level since 1991. Amid further signs of building price pressures, the figures add to market speculation of a policy change by Bank of Japan. We share that view and think a hike in the policy rate to 0% and another increase in the yield curve control target likely awaits in Q2 23.

FI: ECB members pushed back against the recent repricing of lower yields yesterday. EUR rates grinded gradually higher in yield terms during the day. Bunds ended 4bp higher on the day amid minor intra-euro area spread changes. The front-end underperformed the longer part of the curve, as ECB rate hike expectations repriced significantly, unwinding most of the rally on Tuesday/Wednesday. Compared to Monday, ECB policy peak rate as priced by markets is just 3bp lower now at around 3.4%.

FX: Overall, little changed in G10 FX overnight. EUR/USD hovers just north of 1.08 after both Fed (e.g. Collins) and ECB (e.g. Lagarde) suggest they will deliver according to forward guidance, that is, Fed toward 5.00-5.25% and ECB 'stay the course' and go 50bp at the next meeting. JPY slightly weaker vs peers where USD/JPY clawed back above 129. EUR/SEK moved to the higher end of the 11.10-11.20 range yesterday and EUR/NOK held just below the 10.75-area resistance.

Credit: Negative sentiment in equity markets drove credit spreads wider. ITraxx Xover was 17bp wider at 428bp, while Main was 4bp wider at 82bp. That said, the primary credit market was still open for business. In Scandi space, European Energy printed a EUR100m hybrid bond with a 10.75% coupon and made a EUR75m tap issue of its EUR 2026 senior unsecured bond at 99.50.

Daily Pivots: (S1) 158.06; (P) 158.66; (R1) 159.73; More...

Intraday bias in GBP/JPY remains neutral for the moment as range trading continues. . On the downside, break of 155.33 will resume the whole decline from 172.11 to 153.70 fibonacci level. On the upside, above 161.51 will bring stronger rise through 55 day EMA (now at 162.32).

In the bigger picture, as long as 163.02 support turned resistance holds, decline from 172.11 medium term top is expected to continue to 38.2% retracement of 123.94 to 172.11 at 153.70. Sustained break there will raise the change of trend reversal and target 61.8% retracement at 142.34. Nevertheless, break of 163.02 support turned resistance will argue that the decline has completed, and retain medium term bullishness.

Daily Pivots: (S1) 138.20; (P) 138.82; (R1) 139.71; More....

EUR/JPY recovered ahead ahead of 137.37 support and intraday bias is turned neutral. On the downside, firm break of 137.37 will resume whole decline from 148.38 to 135.40 fibonacci level next. However, firm break of 142.84 will argue that the correction from 148.38 has completed, and bring stronger rise back to 146.71 resistance.

In the bigger picture, as long as 55 week EMA (now at 138.64) holds, larger up trend from 114.42 (2020 low) is still in progress for 149.76 long term resistance. However, firm break of 55 week EMA will bring deeper fall to 38.2% retracement of 114.42 to 148.38 at 135.40. Sustained break there will raise the chance of trend reversal, and target 61.8% retracement at 127.39.

Daily Pivots: (S1) 0.8713; (P) 0.8750; (R1) 0.8778; More...

EUR/GBP's fall from 0.8996 is still in progress and intraday bias remains on the downside for 61.8% retracement of 0.8545 to 0.8896 at 0.8679. Sustained break there will pave the way back to retest 0.8545 low. On the upside, above 0.8802 minor resistance will turn intraday bias neutral first. But risk will stay on the downside as long as 0.8896 resistance holds.

In the bigger picture, current development argues that rebound from 0.8545 is merely a correction to fall from 0.9267. Sustained trading below 55 day EMA (now at 0.8748) will affirm this bearish case and target 0.8545 and below. Nevertheless, strong rebound from current level will retain near term bullishness for another rise through 0.8896 later.

Daily Pivots: (S1) 1.5559; (P) 1.5655; (R1) 1.5770; More...

Intraday bias in EUR/AUD stays mildly on the upside at this point. Correction from 1.5976 should have completed at 1.5376. Further rally would be seen for retesting 1.5976 first. Firm break there will resume larger rise from 1.4281. For now, risk will stay on the upside as long as 1.5376 support holds, in case of retreat.

In the bigger picture, it's still early to confirm if rise from 1.4281 represents bullish trend reversal. But as long as 1.5271 support holds, such rally is in favor to continue. Break of 1.5976 will target 1.6434 key resistance next. On the other hand, firm break of 1.5271 will retain medium term bearishness instead.

Daily Pivots: (S1) 0.9891; (P) 0.9911; (R1) 0.9942; More....

EUR/CHF recovered after hitting 55 day EMA and intraday bias is turned neutral first. Another fall is in favor as long as 0.9962 minor resistance holds. Below 0.9873 will target 38.2% retracement of 0.9407 to 1.0095 at 0.9832. On the upside, above 0.9962 minor resistance will turn bias back to the upside for retesting 1.0095 high.

In the bigger picture, break of 38.2% retracement of 1.1149 to 0.9407 at 1.0072 and 55 week EMA (now at 1.0041) is taken as an initial sign of long term bullish reversal. Further rally is expected as long as 55 days EMA (now at 0.9874) holds. Next target is 1.0505 cluster resistance (2020 low at 1.0505, 61.8% retracement of 1.1149 to 0.9407 at 1.1484). Reactions from there should reveal long term momentum.

Daily Pivots: (S1) 1.3436; (P) 1.3479; (R1) 1.3510; More....

Intraday bias in USD/CAD is turned neutral with current retreat. But risks stay on the upside as long as 1.3320 support holds. Pull back from 1.3704 should have completed. On the upside, above 1.3519 will target a test on 1.3704 first. Firm break there will resume the whole rebound from 1.3224.

In the bigger picture, as long as 1.3222 cluster support (38.2% retracement of 1.2005 to 1.3976 at 1.3223) holds, larger up trend from 1.2005 (2021 low) is still expected to resume through 1.3976 high at a later stage. However, firm break of 1.3222/3 will indicate that the trend might have reversed. Deeper fall would be seen to next cluster support at 1.2726 (61.8% retracement at 1.2758).

Daily Pivots: (S1) 0.6872; (P) 0.6910; (R1) 0.6948; More...

Intraday bias in AUD/USD remains neutral for consolidations below 0.7062. Overall outlook stays bullish as long as 0.6721 support holds. On the upside, break of 0.7062 will resume rise from 0.6169 to 61.8% projection of 0.6169 to 0.6892 from 0.6721 at 0.7168 next. However, firm break of 0.6721 will indicate short term topping, and turn bias back to the downside.

In the bigger picture, corrective decline from 0.8006 (2021 high) should have completed with three waves down to 0.6169 (2022 low). Further rally should be seen to 61.8% retracement of 0.8006 to 0.6169 at 0.7304. Sustained break there will pave the way to retest 0.8006. This will now remain the favored case as long as 0.6721 support holds.

Daily Pivots: (S1) 1.0796; (P) 1.0818; (R1) 1.0853; More...

Intraday bias in EUR/USD remains neutral for consolidation below 1.0886. Overall outlook will remain bullish as long as 1.0482 support holds. Break of 1.0886 will resume rally from 0.9534 to 61.8% projection of 0.9630 to 1.0733 from 1.0482 at 1.1164 next.

In the bigger picture, current development suggests that the rally from 0.9534 low (2022 low) is a medium term up trend rather than a correction. Further rally is in favor to 61.8% retracement of 1.2348 (2021 high) to 0.9534 at 1.1273 next. This will remain the favored case as long as 1.0482 support holds.