Coming in to today, traders and investors are focused on one thing and one thing only, and that is today’s US NFP data. The risk is massively tilted to the downside, and the tone set by the US ADP data isn’t optimistic at all. The private payroll number released on Wednesday confirmed that employment conditions have deteriorated, and we are likely to hear an echo of this message in today’s number.
What supports a case for a weak NFP?
The following are some arguments that support the case for weaker US NFP data today. We have seen a lower Consumer Confidence index. The 4-week average for Jobless Claims has also started to increase. The University of Michigan Consumer Sentiment Index has dropped to a level that we have not seen in nearly ten years. We have seen the first drop in the US ADP employment data since December 2004, and the US ISM Services Employment Component data has also started to decline. Now, the odds for a higher US NFP data aren’t that strong for the following reasons: we have seen only a minor improvement in the ISM Manufacturing Employment and Continuing Claims, only showing a milder improvement.
The big question for traders is how the market will react to a weak or a strong number, especially now that bulls are losing their mojo. For instance, the Nasdaq 100 index had its worst one-day sell-off yesterday since 2020. The sell-off led by Meta shares has halted the tech rebound, and the entire bull run is once again facing serious challenges.
The forecast for the US NFP is 110K, which is much lower than the previous reading of 199K. The unemployment rate is expected to remain the same at 3.9%, but the Average Hourly Earnings m/m is expected to drop to 0.5% to 0.6%. Overall, the bar is set too low once again, and if the actual number matches the forecast, we may see confidence strengthening among traders, which could spur a bull run. On the flip side, if we see a number that comes out even weaker than the expectations, we could see the equity markets tanking further as traders will think that the Fed is getting ahead of themselves, and increasing interest rates may not be the best strategy at the moment.
SNAP: On Thursday, Snap posted its first quarterly net profit and the number came out above analyst expectations for the fourth quarter in terms of profitability, sales, and user growth. It also announced Q1 projection of $1.03 billion to $1.08 billion, which was better than the $1.01 billion expected by analysts. It anticipates 328 million to 330 million daily active users in the first quarter, above analyst expectations of 327.8 million. Snap has similar challenges as Meta. Hence the company warned that it expects a $10 billion revenue impact in 2022 as a result of Apple’s privacy rules on iOS, which make it more difficult to target users with advertiser content. This is likely to be the theme now with companies that have been targeting consumers on the back of Apple’s platform. The fact that Apple has tightened up the screws, these advertisers will need to find another way to bring back the same revenue numbers.
Ford: Another stock to focus on today will be Ford. Ford Motor Company’s stock fell after the company posted fourth-quarter earnings that were much below Wall Street’s estimates and marginally down on revenue.
In after-hours trading, the company’s stock dropped by more than 6%. While the carmaker met its annual profitability estimate for 2021, it fell short of the production objectives expected by analysts owing to supply chain issues, notably a persistent scarcity of semiconductor chips.
Despite the fact that the Bank of England hiked interest rates, while the European Central Bank maintained its monetary policy, EUR outperformed GBP fourfold since the BoE’s 25bp rate rise was expected, and as we reported yesterday, some market players had hoped for a 50bp move.
In some respects, the BoE’s action was more discouraging than the ECB’s guidance, despite the fact that it was the first back-to-back rate interest rate hike since 2004. The intriguing element is that even if all of the nine members preferred a greater shift in the interest rate, but the five-member , including Governor Bailey, decided for only a 25-basis points rate hike because of weaker growth. Simply put, they believe that it is more sensitive to hike rates just by 25bp, as they don’t want to choke economic growth. The bank will also start to reduce the size of its bond holdings soon as well.
More rate rises are undoubtedly on the way for the Bank of England, but today’s decision for a more gradual pace is indicative of a more cautious approach. Governor Bailey also made it clear that the markets should not think that another rate hike is a done deal next month; the bank wants to assess the situation more carefully and take measure action.