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Wednesday, November 30, 2022

Amazon to reverse Nasdaq losses, NFP wages growth in focus

Facebook got severely hammered yesterday, and not even a 25% drop could bring in the dip buyers, so one of the biggest tech stocks of America – and the world shed some $250 billion in value in a blink of an eye.  

Of course, Facebook’s 26% plunge during the session weighed badly on the S&P500 and Nasdaq. The S&P500 lost about 2.5% while Nasdaq shed some 4%, rapidly giving back the half of the last couple of days gains. The volatility picked up again, with the VXN index, which is a gauge of volatility on the Nasdaq stocks surging back above the 30 mark, as other tech stocks suffered along with Facebook, Apple lost some 1.60%, Google lost more than 3.50%, Netflix more than 5.50%, and Amazon near 8%!  

But some of them will find it easier to recover today, and among them we have Amazon, which saw its share price rally near 20% in the after-hours trading after the earnings announcement sounded surprisingly satisfactory to its investors.  

Today there are no major earnings on the calendar, so tech investors may enjoy what should be a strong positive session, thanks to … Amazon!  

With the most hyped earnings out of the way, we shall start seeing the volatility ease from next week. But the cards are clearly redistributed at the heart of the FAANG – where Apple, Amazon and Google shined, while Facebook and Netflix lost big at this latest earnings season.  

A last thing to watch: The US jobs data 

The wages growth will be more important than the number of nonfarm jobs added to the US economy at today’s release, because first, we know that the December numbers are heavily shaken by the omicron wave and it’s not representative of the overall health of the US jobs market, and second, even if we see a negative NFP print, it won’t matter much for the Federal Reserve (Fed) expectations.  

But the wages growth is important, as higher wages mean a stickier inflation and a stickier inflation means a more hawkish Fed policy, and a more hawkish Fed policy means less liquidity and less appetite for investors.  

Wages may have grown more than 5% in the US in January, which would be the biggest growth since March last year, and has the potential to revive the Fed hawks. But the good news is, the Fed hawks have gone so far lately that, even a strong growth in wages wouldn’t do much to the overall market mood. The game is now being played on the earnings front, and the latest reaction to Amazon earnings hints that we will probably have a good session before the weekly closing bell. 

She finally said it! 

The European Central Bank (ECB) President Christine Lagarde finally said that inflation in Europe would last longer than they expected due to the soaring energy prices. Brava! 

At yesterday’s press conference, Lagarde affirmed that the ECB is now ready to adjust all tools as appropriate; this could mean a quicker end of the bond purchases, and a rate hike!  

March update to projections will be decisive in what the ECB will do next, but we already know that March projections will include high inflation, and will probably say ‘raise the rates Christine!’. 

Money markets are already pricing in a 10bp hike from ECB by July this summer. The EURUSD rallied to 1.1470 post-ECB, pulling out its 100-DMA for the first time since last June. The next important resistance stands near 1.1550, which is the 38.2% Fibonacci retracement on last May – this January decline, which should distinguish between the actual negative trend and a medium-term bullish reversal. So, we have a thick layer of 1.15/1.1550 offers to be cleared before we call the end of the weak euro against the US dollar.  

Against the pound it’s a whole different story, as the Bank of England (BoE) is already raising the interest rates and the less dovish ECB could give a relief to the EURGBP, but it may not reverse the medium term negative trend in the euro-pound. Because, although a 25bp hike was largely expected from the BoE at yesterday’s meeting, seeing four members over nine voting for a 50bp hike came a surprise and as a warning that the rate hikes in the UK may continue in the coming meetings. Will that help pushing Cable to the 1.40 level is yet to be seen, as yesterday’s hawkish shift couldn’t keep the pair above the 1.36 mark, even with a broadly relaxed US dollar.  

And speaking of the dollar, the US dollar index is again testing its 50-DMA to the downside, and it could be a good level for the dupbuyers to join the USD longs as the hawkish Fed expectations are here to stay. 

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