Swissquote Bank: Now what, Christine?

February 3, 2022

By Ipek Ozkardeskaya, Senior Analyst at Swissquote Bank

Yesterday’s ADP data showed that the US economy lost some 300’000 private jobs in December, versus 185’000 job additions expected by analysts, but no one cared.

No one cared because first, we knew that the latest omicron wave would’ve taken a toll on the numbers, and the December weakness in the US jobs is certainly temporary. And second, there are millions of jobs available in the market, and there is nothing the Federal Reserve could do to get people to work.

Friday’s jobs data could print a similar figure as well, but again, no one will care.

What people care about is the earnings, and inflation.

Google jumped by more than 7% yesterday to a fresh record high on the back of strong earnings. Nasdaq gained for the fourth consecutive session adding another 0.50% to its gains. The index is now above its 200-DMA for the first time in about two weeks. But don’t uncork the champagne just yet! Because the Nasdaq futures are trading more than 2% lower at the time of writing. Disappointing Facebook results, and a 23% plunge in Meta shares in the afterhours trading calls for a red session in the US.

Amazon is the last FAANG stock to announce earnings today, and the company is expected to reveal a second consecutive month of earnings decline. Ouch.

Now what, Christine?

Inflation in the Eurozone hit 5.1% in December. 51% on the back of soaring energy prices, and perhaps Christine Lagarde’s insistence in keeping the monetary policy extra loose in Europe despite the red flags that have been pointing that inflation was going to be become a big problem in Europe as well since months!

At some point in December, the Dutch natural gas futures were trading by more than six times compared to the same time last year, while the barrel of US crude advanced to $ 90pb. Although the European gas prices have plunged over the past couple of days as Russia boosted the gas flow from Ukraine after a very dry January due to the geopolitical tensions, energy prices remain under a decent positive pressure, which SCREAMS that inflation in Europe may not be that transitory after all!

So, all eyes are on Christine Lagarde and what she has to say at today’s press conference. Will she insist that inflation is transitory or will she finally accept the defeat, and call it a problem, in which case we will perhaps see the ECB hawks taking the reins of the market after months of a decent suppression. We will see.

One thing is clear: the longer the ECB waits before taking action to tame inflation, the faster they will have to pull back support. Any hawkish commentary from the ECB today could send the EURUSD above its long-term downtrending channel, and keep it there!

Across the Channel, the discussion will likely not be as heated in the UK, as Brits will probably raise their interest rates by another 25bp for the second time at today’s meeting. Cable is pushing higher these days, partly due to the hawkish BoE expectations, but partly due to a broader downside correction in the US dollar.

Although the BoE hike is mostly priced in, the sterling bulls could take advantage of a broadly soft dollar to buy any comment that would sound more hawkish than expected, in which case, the GBPUSD could consider another rise toward its 200-DMA, near 1.37, which has been tested but not broken in mid-January attempt.

OPEC moving slow is perhaps not a choice!

OPEC announced to increase output by 400’000 barrels in line with the market consensus. The market is getting increasingly thirsty, and there needs to be more pumping to satisfy the rapidly rising demand, but OPEC’s slow move is not just a question of what OPEC wants.

Key oil producers already struggle boosting their production to meet the 400’000 barrels increase a day. Therefore, raising the production target when it can’t be reached would be a silly move anyway. So yes, OPEC being constrained to move slowly is a problem and the consensus is that oil prices will hit the $ 100pb right now.