Even the White House says it’s going to be bad…

The market is clearly still trading nervously

After Wednesday’s ADP numbers showed that the US economy lost -301K jobs in Jan (vs expected growth of +180K jobs), even the White House has come out to warn of a bad Non-Farm Payrolls number later today will be weak. Investment banks have scrambled to revise their forecast lower as well, with Goldman Sachs projecting a loss of -250K jobs vs the market’s expectation of +125K.

A soft jobs number will rein in fears of aggressive rate hikes from the US Federal Reserve and it would be good if Average Hourly Earnings, which is expected to grow by +5.2%, also shows moderate growth as that would mean inflation pressure is not as strong on the wage front. That would give the Fed more breathing room to tighten policy at a gradual pace.

The market is clearly still trading nervously. A bad earnings report from tech giant, Meta Platforms (formerly known as Facebook) wiped off more than $230 billion dollars off Meta’s valuation, and dragged Amazon down by $100 billion. A strong earnings report from Amazon hours later led to a rebound and an increase of around $200 billion of value in Amazon shares. $200 billion is still a lot of money, even in the days of relentless money printing and is more than the value of 9 in 10 companies in the S&P 500.

These wild swings show how nervous and confused investors and speculators are as they try to figure out what’s next. However, as the years past have shown, betting against the tech giants which are charting double digits growth relentlessly year after year is not the wisest thing to do.

TRADING TIP

Trading is not meant to be exciting

In this technological age, many of us have the need to feel constantly entertained or excited whenever we carry out an activity.

Due to what is portrayed in the movies, trading is often misunderstood and it is often associated with high risk and lots of excitement. The traders in the movies often have a lot on the line, and every tick in the markets is a hair-raising moment.

The market movements on the lower time frames are usually noise and having the need to pay attention to them might mean that you are risking too much in the markets and are afraid of the losses or that you are treating trading as a form of gambling.

Paying too much attention to noise in trading is never productive as it simply results in stress and unnecessary intervention that will eat at your capital, both financially and mentally. Trading, if done right, should be a systematic, and even boring process of repeating what works.

Risk management is not meant to be exciting. If you find trading exciting, it often means you are taking too much risk.

DAY AHEAD

The US Non-farm Payrolls and Average Hourly Earnings today will be closely watched as a strong labour market and wage pressures are the main reasons why the Fed is worried about inflation and wants to hike interest rates. Weaker than expected data could temper that hawkishness.

TRADING PLAN

1. Currencies:
Keep short USD against CNH. USDCNH is stuck in a tight trading range for now. Stay short.

2. Commodities: Uranium & Energy — Stay long.

3. Equities:

Equity Index: Wild swings, and a nervous market — not a good time to be a hero. Stay cautious.

Single Stocks: Stocks in our TrackRecord Model Portfolio are recovering but volatility remains high. Stay cautious.

Key risks: US jobs data later today, the Ukraine situation and news of the Omicron strain remain a focus too.

WHAT HAPPENED YESTERDAY

Market Movement As of New York Close 3 Feb 2022

In its policy meeting yesterday, the ECB left its deposit rate unchanged at -0.5% as expected. The central bank maintained that rates will remain at their current level or lower until conditions for rate hikes have been met. The bank’s Pandemic emergency purchase programme (PEPP) is slated to end in March and its asset purchase programme (APP) will be lifted to 40B in Q2 and subsequently scaled down to 20B in December. PEPP reinvestments will continue to the end of 2024. Additionally, the central bank affirmed that QE purchases will end before any rate hikes happen.
The Bank of England increased its main Bank rate by 25 basis points to 0.5%. The central bank also raised its inflation forecast from a 6% peak to 7.25% that is projected to occur in April .
The U.S. Dollar Index fell -0.58% to 95.38 amid relative strength in the EUR, which was due to Lagarde’s comments that the central bank is becoming increasingly concerned over inflation. She refused to say, as she did in the press conference after the previous meeting, that a rate hike is unlikely this year also contributed to the EUR strength. The EURUSD rose more than 1% due to this surprise in hawkishness.
US 2-yr Treasury Bond yield increased 3 basis points to 1.19%, and the 10-yr yield increased 4 basis points to 1.82%.
The S&P 500 declined -2.4%, the Dow Jones Industrial Average (-1.45%), Nasdaq (-4.22%) followed suit and Russell 2000 (-1.97%) followed suit. The decline occurred as risk sentiment remained heavy due to Meta platform’s underperformance (down more than -25% on the day)..
In the afterhours, the Nasdaq 100 futures rallied +1.9% as tech earnings streamed in. Amazon (EPS $5.80 or $27.75 with Rivian gains added vs $3.57 expected) rose 14% from the lows after dropping more than 7% before the market closed. SNAP which dropped nearly 24% at market close rose 59% from the lows because of a strong beat in earnings. (EPS $0.22 vs $0.10 expected). Pinterest (EPS $0.49 vs $0.45 expected) earnings also exceeded market expectations and bounced 21% in after-hours trading, after falling 10% during market hours.
Oil prices surged past the $90 level on the back of cold temperatures, as supply continues to lag demand.
The crypto markets behaved pretty similarly to the equity futures markets with a decline earlier in the day due to dampened risk sentiment from Meta’s underperformance but ended the day flat as aftermarket earnings streamed in. Bitcoin was down as much as 2% within the day but ended the day higher, increasing 1.1% from the previous day. Ether had a low of -3.9% but managed to end the day in the green.

HEADLINES & MARKET IMPACT

‘Too early to say’ if world faces sustained inflation: IMF chief

Notable Snippet: The head of the International Monetary Fund (IMF) said on Thursday (Feb 3) that it was “too early” to say if the world was facing a period of sustained inflation, but warned that failure to make economies more resilient to future shocks could lead to big problems.

IMF managing director Kristalina Georgieva told reporters that global policymakers need to carefully calibrate their fiscal and monetary policies in 2022 to ensure that widespread withdrawal of COVID-19 support funds and rising interest rates did not undermine the recovery.
The IMF last week cut its economic forecasts for the United States, China and the global economy, and said uncertainty about the pandemic, inflation, supply disruptions and US monetary tightening posed further risks.

She said efforts now to invest more in the resilience of people, the economy and the environment would help create more opportunities for greater job growth and prosperity.

Failure to make such investments would result in a bleaker outlook, which would result in “more unexpected events for which we are not prepared,” Georgieva said.

WHAT WE THINK: This could be an early signal to a change in the policy situation around the world with many central banks set on tightening. Perhaps we could see an ease off the tightening of various central banks around the world as they start to receive forecasts of reduced growth.

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January jobs report could show omicron caused first steep decline in payrolls in more than a year

Notable Snippet: The sudden slam to the economy from the omicron Covid variant could show up in January’s employment report as the first big loss of jobs since late 2020.

PNC forecast the most job losses at 400,000. Other forecasts include a gain of as many as 250,000 jobs. The last time the monthly employment report was negative was December 2020, when it was down 306,000 and parts of the economy were still shut down.

For the Federal Reserve, the report should confirm the swift negative reaction in the labor market to omicron, and it is not a surprise. It is also likely to have no impact on Fed policy or interest rate hikes since omicron’s effects are expected to be fleeting.

WHAT WE THINK: If a lacklustre jobs report is accompanied with a slowdown in inflation, it will likely bode well for risk assets as policymakers are able to tap on monetary policy easily to prop up the economy. If inflation persists while jobs growth starts to decline, the situation can be precarious and the market will start to fear stagflation.

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IOC launches Beijing Olympics-themed mobile game with NFTs

Notable Snippet: The association that organizes the Olympic Games said Thursday it has launched a mobile game based on the upcoming Beijing 2022 winter event. The game will incorporate NFTs, collectible crypto tokens designed to represent ownership of virtual properties.

Olympic Games Jam: Beijing 2022 will let players compete in a number of sporting events, including snowboarding and skiing. Users can also don their avatars with a range of custom skins.

People will be able to buy digital versions of the famous Olympic pins and trade them with other users on nWay’s marketplace. The digital pins are licensed through the IOC’s official licensing program, with the organization taking royalties on each sale.

WHAT WE THINK: This bodes well for the world of cryptos as more people are exposed to the many facets of the industry and gradually adapt themselves to its offerings. Mainstream adoption of blockchain tech continues unabated and that is good for the cryptocurrency market.

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