US and European futures are trading lower today as traders are reacting to two important factors. Firstly, it is Friday’s US Job report which has made traders think that the Fed may continue with its interest rate and perhaps could adopt a hawkish stance as the labour market is more robust. Secondly, geopolitical tensions have flared up between the two biggest economies of the world, and the concern is that this could have an adverse impact on the economic relationship between the US and China.
The S&P 500 has soared more than 7% so far this year. The Nasdaq Composite has been scoring gains for the past five weeks in a row. In terms of earnings, we are nearly halfway through the fourth quarterly earnings. Disney, Chipotle, Dupont and PepsiCo are some of the big names that will report their quarterly earnings this week. Overall, so far, the earnings season has been that great, but the US stock indices have certainly staged a remarkable rally.
The US jobs report number was so good that many had to check the number twice to make sure that they were reading the print incorrectly. The data confirmed that the US labour market is thriving and showed no sign of weakness which traders have been thinking about due to the message that they had during the current US earnings season. Remember, the Fed watches the US labour very closely, and for them, it is an important indicator in determining the path of their monetary policy. The fact the US labour market is strong gives the Fed the opportunity to push their monetary policy curve a little further. This is because the Fed has still not declared victory in its war against inflation. The new inflation print is due next week and will most certainly be the most important economic event that traders will be watching. But for now, the Fed knows that inflation is still trending much higher than their desired target, and there is a threat that next week, we may see the inflation data changing its direction as oil prices are much more stubborn.
Diplomatic tensions have flared up once again between the US and China. The Chinese spy balloon in US air space has increased the temperature, and Beijing is immensely outraged that the US has shot down its balloon and labelled it as a spy balloon. For investors and traders, the only thing that matters is the relationship between the two most important economies in the world. It was only recently that traders started to feel a lot more comfortable about the policies and communications adopted by Washington and Beijing. But the balloon event has changed the course of the communication and relationship between the two superpowers. This means that it may be time for traders to look for some insurance for their portfolio, as these things do have the tendency to get out of control fairly quickly.
Oil prices are trying to stage some recovery after they posted a weak performance last week. Traders are concerned about the future path of oil prices due to the US jobs report, which has flared up concerns that higher rates could strangle growth in the US. As for Chinese demand, that still remains a wild card as Beijing continues to dismantle its zero covid policies. But flaring up tensions between the US and China are also becoming a cause for concern for oil traders. If Washington or Beijing loses their cool about the situation, it could adversely influence oil demand.
Gold prices had a terrible week, and today, we do see the price picking up some strength as the price has fallen near its 50-day SMA on the daily time frame. Generally speaking, this is a point where we do see some buying taking place, and the hope is that prices will begin their recovery from this point. The current sell-off, which was triggered due to the strength in the dollar index, is nothing more than a healthy retracement.