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Analysis

Risk off on bank fears and strong NFP expectation

BY Janne Muta

|März 10, 2023

Equities sold off yesterday as a sharp decrease in deposits in SVB Financial Group caused investors to worry about the banks in general. According to WSJ, the four biggest U.S. banks lost $52 billion in market value and the KBW Nasdaq Bank Index had its biggest decline since the pandemic roiled the markets nearly three years ago.

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WSJ reports that “Shares of SVB, the parent of Silicon Valley Bank, fell more than 60% after it disclosed the loss and sought to raise $2.25 billion in fresh capital by selling new shares”. This created a wave of selling in small and big banks alike. PacWest Bancorp shares dropped 25% and First Republic Bank shares fell by 17%. Not even the biggest player in the street, JPMorgan Chase & Co. was spared. Bank’s shares slid lower by 5.4%.

Analyst consensus expects to see 224K new jobs created in the US economy. All the recent data points to strength in the jobs market so it’s quite possible that we’ll see a better-than-expected Non-Farm Employment report today. A week ago the services sector PMI came in above expectations (55.1 vs. 54.5 expected) and this week's data has continued to come in strong.

The ADP report surprised to the upside (242K vs. 197K expected) and the JOLTS also beat the expectations with 10.82M new openings vs. 10.58M expected. Yesterday, the unemployment claims ticked higher but the current level (211K) is still well below the long-term averages. This combined with Fed Chair Powell saying the data will strongly impact the interest rate decisions the Fed bankers make is bad news for the equity market bulls and dollar bears. If the Fed is prepared to take the risk of driving the economy into recession the current valuation levels are too high.

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DJ has created a market top

DJ is bearish below 32 474. The market failed to maintain the levels above 32 876 which lead to the market breaking key support levels at 32 474 and 32 570. Breaking these major support levels means DJ has created a market top and is now trending lower in the daily timeframe chart. The next support levels in DJ are at 30 400 and 31 700.

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Lower swing high in NAS

Nasdaq is bearish below 12 080. The market rallied to 13 320 level but then the bulls lost control and now the market has created a lower swing high in the 8h chart. This indicates the market is likely to trade to the 11 800 level. If the green team could push the market above 12 080 it would probably trade to the 12 160 – 12 180 range.

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UK 100 broke the range low

FTSE is bearish below 7840. The market has broken below the base formation it was trying to build. The next major support level in FTSE is at 7690. This is where the market topped in February 2022. So the level is likely to be an important support.

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EURUSD bounces higher from a range low

EURUSD is a range bound between 1.0530 and 1.0690. The range is created on top of a historical support level (1.0480). The level is so close that if the NFP result creates high volatility and the range low is penetrated it’s likely that the 1.0480 gets tested. If the NFP number is dollar-negative, EURUSD probably trades higher to 1.0650 or so. In trading ranges it makes sense to employ mean reversion strategies. In other words, selling at the range high and buying at the range low is the preferable strategy.

The Next Main Risk Events

  • CAD Employment Change
  • CAD Unemployment Rate
  • USD Average Hourly Earnings m/m
  • USD Non-Farm Employment Change
  • USD Unemployment Rate

For more information and details see the TIOmarkets economic calendar.

Trade Safe!

Janne Muta
Chief Market Analyst
TIOmarkets.com

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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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