By Craig Erlam
Stock markets have been under pressure on Friday and the US is poised to open in the red also, with the Nasdaq hit particularly hard.
This comes on the back of some disappointing earnings from heavyweight tech firms Apple, Amazon and Alphabet. Each had their own reasons for disappointing the Street, but ultimately the one thing they all have in common is the economy and the outlook, and it’s hitting both the top and bottom lines.
Whether that’s through fewer device purchases or lower spending on the cloud and advertising, the trend is clear for all to see. Many of the big tech firms have responded by tightening the purse strings and announcing mass layoffs, but more is needed to win over Wall Street.
Jobs report could offer further respite
Of course, another common factor in all of this is inflation and interest rates which brings us nicely back to the economic data. The US jobs report later Friday could ease the pressure on big tech if we see a friendly report consisting of more modest wage growth, lower job growth and higher participation.
A soft landing, while still doable, can’t be achieved without seeing more slack in the labour market. That will likely necessitate both higher participation and a slight increase in the unemployment rate, both of which should address the wage issue and prevent a price spiral.
It’s a fine balancing act and it’s about time we see some evidence of it happening or confidence in the terminal rate being here or near will fade.
Oil prices are a little lower again at the end of the week, settling somewhere around the middle of the new year range.
Sweeping risk aversion in the markets and concerns around a potential deeper slowdown, driven by higher rates will have that effect, but once again it’s worth noting that sentiment in this market is fickle.
It doesn’t take too much, as we saw in early January, for investors to become euphoric, nor for them to lose their nerve. That could remain a key feature of the first quarter and ensure oil prices remain highly volatile.
Gold’s lost momentum
The Fed surge in gold appeared to be built on weak foundations as momentum simply didn’t match the price rally. That isn’t to say it couldn’t play catch up, but Thursday’s plunge may suggest that won’t happen just yet. Instead, the yellow metal finds itself testing interesting support around $1,910 and then $1,900.
The first is the ascending trend line from early November and the second is recent support, but could also be considered the neckline of a two-week double top. Either way, a break of these levels could propel the yellow metal into a correction phase.
Could jobs report spark a bitcoin reversal?
Bitcoin continues to hold on impressively to new year gains, but it goes without saying the momentum has fallen away, culminating in Thursday’s sharp reversal off its most recent high.
It looks primed for a correction although that momentum could return if we see some positive headlines or an improvement in risk appetite.
Once more, we find ourselves looking to the jobs report on both counts. A disappointing report could see the correction take hold.
Craig Erlam is Senior Market Analyst, UK & EMEA at OANDA
Opinions are the author’s, not necessarily that of OANDA Global Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. Losses can exceed investments.