Stock Market Today
American futures are trading lower while European futures are up as stock traders look forward to today’s job openings report to be published by the Bureau of Labor Statistics in the United States. This report is important as the state of the labour market is a key factor that the Federal Reserve takes into account while deciding on its future monetary policies. It is a leading indicator of how employment levels in the country may change in the short term. We are also expecting the manufacturing purchasing managers’ index (PMI) to be released today. Investors can use these two reports to forecast at what pace the American economy will likely grow over the next few months.
January proved to be a difficult month for stock markets, with investors rebalancing their portfolios and pivoting away from growth stocks to cyclical and value stocks. This is because the value of growth stocks declines when interest rates rise. In yesterday’s session, the Dow Jones Industrial Average climbed 1.17%, and the S&P 500 index jumped 1.89%. The Nasdaq, the tech-savvy index, hopped 3.41% and the Russell 2000 rose 3.05%.
Investors should understand that the recent stock market slump does not imply that bulls have given up, but rather that markets are adjusting to the Federal Reserve’s phasing out of the massive stimulus provided over the last two years. Moving forward, the American economy is expected to expand further, and companies are expected to report solid earnings supported by strong demand and a global economic recovery. Furthermore, the Federal Reserve is likely to continue tapering with extreme caution so that investors are not scared off and a taper tantrum is avoided. This perspective was evident in Esther George’s, President of the Kansas City Fed, comments that it is in “no one’s interest to try to upset the economy with unexpected adjustments” and that Fed officials are working hard to keep shifts in its monetary policy “gradual” and less “disruptive”.
Stock traders should note that video game companies have become attractive targets for large companies, with three major acquisitions announced in January. Earlier, Microsoft announced that it was acquiring Activision Blizzard for $69 billion. Following Microsoft’s move, Sony has also decided to purchase Bungie, which is a video game developer in the United States, for $3.6 billion. This acquisition will likely enable Microsoft to compete with the popular ‘Call of Duty’ games owned by Microsoft.
The future outlook of crypto markets remains positive despite the recent dip in crypto markets, which caused the price of Bitcoin to fall nearly 46% from its historical peak, of nearly $69,000, reached in November 2021. The interest in the blockchain space continues to expand and can be clearly seen from the valuation of FTX, a cryptocurrency exchange, which has hopped to an unbelievable $32 billion. The company has been successful in raising $400 million recently.
Crude oil prices have been continuously rising over the past few months as a result of surging demand and narrow supply. Last month, oil prices gained nearly 17% and touched $91.70 per barrel, their highest level achieved since 2014. Demand is expected to keep on climbing as coronavirus cases around the world keep on declining and the availability of vaccinations and better treatment options available are likely to prevent the panic witnessed in 2020. Moreover, major oil-producing nations are also likely to stick with their current strategy of gradually raising their oil output. Hence, crude oil prices are likely to have only one way to go, and that is up.
The depreciation of the US dollar assisted the precious metal in avoiding a significant drop in price after the Fed reiterated its hawkish stance in last week’s meeting that interest rate hikes are imminent. Rising interest rates raise the opportunity cost of holding gold, making it less appealing to investors. However, the dollar index has retreated from multi-month highs, which has supported gold prices to some extent. In the short term, investors should keep in mind that rising consumer prices and greater volatility in stock markets will likely support the precious metal.
The value of the US dollar has risen in recent months as investors priced interest rate hikes to be implemented by the Fed into the markets. However, the dollar index reversed course on Monday, indicating that expectations of rapidly rising interest rates have likely been fully priced into the currency. Moving forward, the rate of inflation and the state of the labour market are likely to have an impact on the price action of the US dollar. The non-farm payroll figures for the United States are set to be released on Friday. These figures will aid the Fed in determining how quickly it should tighten its policies in the future and will thus have an impact on the US dollar as well.
Asian Pacific Markets
Australia kept its interest rate unchanged at 0.1% but ended its bond purchase programme as expected. As per officials, the Australian central bank will not raise its policy rate unless inflation is consistently between the 2% and 3% range. Even though consumer prices have risen over the last few months, it is still too soon to take affirmative action. Moreover, as per the latest data, retail sales dropped to $22.53 billion in December 2021, falling nearly 4.4%.
As of 12.47 a.m. EST, the Nikkei jumped 0.32%, and the Shanghai index fell 0.97%. The Hang Seng index, in Hong Kong, surged 1.07%. The ASX 200 index climbed 0.49%, and the Seoul Kospi rose 1.87%.