Market Opportunities in Focus

BY Janne Muta

|February 6, 2024

Here's a brief overview of last week's key events and what you should closely monitor over the next few trading days.

The US Economy & Jobs

Friday’s NFP report showcases the US job market's strength, with non-farm payrolls jumping to 353K, far surpassing the 180K prediction. The unemployment rate dropped to 3.7%, marking a historic sub-4% level for over 50 years. Notable wage growth indicates strong labour demand, with key sectors like education, health services, and manufacturing showing growth.

Despite this, the average workweek slightly decreased, suggesting possible future adjustments. The report rallied the dollar as markets anticipated the strong report to slow Federal Reserve's interest rate cuts.

Central Bank Policy

In the last week’s meeting Federal Reserve has maintained its interest rates and removed its tightening bias but remains cautious against premature rate cuts. Chair Powell suggested potential rate cuts starting in May, focusing on managing inflation and supporting economic growth.

Conversely, the Bank of England (BOE) kept its rates steady but raised inflation expectations. The BOE's stance indicates a slower easing cycle, aiming to preserve economic stability and confidence. Strong dollar sent the Cable lower.

Stock Indices

Technological stocks, particularly Meta Platforms, have supported the Nasdaq and S&P 500 while Dow Jones Industrial Average has continued to move into new record levels. Approximately 45% of S&P companies have reported earnings, with about 75% beating expectations, indicating a mixed but overall positive earnings season.

The strong jobs report, a solid wage increase, led to a surge in bond yields and tempered expectations for an early Federal Reserve rate cut. So far, earnings reports suggest a mixed but positive outlook, with anticipation of modest growth in 2023 and potential increases in 2024, reflecting underlying economic strength.

US Stocks

Key performers among the TIOmarkets equity CFDs include Meta, Amazon, American Express, and Mastercard, all benefiting from strong earnings, strategic decisions, and positive market positioning. Leading the charge was Meta, which experienced a remarkable 20.45% surge.

This surge was propelled by its exceptional sales growth, the announcement of a quarterly dividend, and a colossal $50 billion share repurchase program. This performance was bolstered by Meta's sturdy ad sales, burgeoning user base, and a positive revenue outlook.

Following closely was Amazon, which recorded an 8.45% upswing. The company benefited from its pivot toward high-margin ventures like third-party seller services and Amazon Prime subscriptions, setting the stage for anticipations of record-breaking profitability in 2024.

American Express also made strides, posting a 7.20% increase last week. The company received a boost from its robust 2024 guidance and solid financial results across its diverse segments, notwithstanding a minor Q4 EPS and revenue shortfall. Meanwhile, Mastercard boasts an impressive profit expansion and consistent revenue growth.

Gold & Oil

The gold market traded lower due to stronger U.S. dollar and rising bond yields following a robust US jobs report. Powell's remarks further dampened hopes of early interest rate cuts sending the dollar higher and the bonds lower. This increased the yields on 10-year Treasury notes and weighed on the XAUUSD.

The oil market has been under pressure after the strong US job report which bolstered the US dollar as it lowered expectations of immediate interest rate cuts leading to softening bids in the oil market.

Furthermore, uncertainty surrounds the OPEC+ group's decision on extending voluntary oil production cuts beyond the first quarter, as no changes were made during a recent ministerial panel meeting. This uncertainty has added to market volatility and downward pressure on oil prices.

Trading Opportunities in Focus

  • Moderated rate cut expectations have pressured the bond market and bolstered the dollar. Should this trend persist, anticipate further strength in the USD.
  • Powell's recent remarks on gaining more confidence in easing inflation prior to rate cuts, along with robust US data, suggest this scenario might unfold.
  • Equity indices in the US and Europe have reaped benefits from stronger-than-anticipated US data. European equity markets, highly correlated with their US counterparts, tend to ascend alongside them.
  • Currently, the Nasdaq and DAX are facing resistance levels, whereas the S&P 500 and Dow have reached new all-time highs last week, showcasing relative strength compared to other main indices.
  • Technology stocks have been propelling the indices upward, yet investors are beginning to ponder: When will the AI promises begin to fulfil the earnings expectations reflected in current valuations?
  • The gold market remains stagnant, trading within a sideways range, as rising yields and a robust dollar hinder sustained rallies, while the Middle East crisis could escalate, driving safe-haven demand.
  • USOIL saw some purchasing interest yesterday, resulting in a bullish rejection candle. This likely indicates not only technical buying after a retracement to key price levels but also concerns that instability in the Middle East could prolong, with escalation potential.
  • Moreover, Ukraine's ongoing targeting of Russian oil reserves is reportedly beginning to impact the oil market, according to Reuters.

Pay close attention to changes in central bank statements, as these could significantly impact the market. Review your charts, identify key levels, and be ready to trade based on what you observe.

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Janne Muta

Janne Muta holds an M.Sc in finance and has over 20 years experience in analysing and trading the financial markets.

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