An encouraging US jobs report and the Institute for Supply Management’s services gauge unexpectedly shrank at the end of 2022 pushing the major US equity indexes higher last week.
A Labor Department report showed that nonfarm payrolls increased 223,000 in December, capping a near-record year for job growth.
The advance followed a revised 256,000 gain in November. Average hourly earnings rose 0.3% from a month earlier and 4.6% from December 2021 after a downward revision to the November
The job report has a dovish and hawkish sign, the dovish sign is the Average hourly earnings are +0.3% MoM lower than expectations (+0.4%) and lower than the previous month (+0.4% revised lower from +0.6%). On a yearly basis: +4.6% vs. 5.1% expected and +4.8% in November.
This is the lowest y/y growth since August 2021. The hawkish sign is Job growth is 223k higher than expected (200k).
The unemployment rate dropped to 3.5%, which is the lowest since 1965. It is quite remarkable to see the unemployment rate going lower after several quarters of rate hikes
On Friday the Institute for Supply Management’s index of services sector activity fell to 49.6, well below consensus and into contraction territory (below 50) for the first time since May 2020, as new orders slowed sharply.
The yield curve flattened even more dramatically on Friday with the 3M10Y spread at a historically deep inversion of over 100bps. There was both dovish and hawkish news in the December US.
Swaps contracts show investors expect the policy rate to peak at under 5% this cycle, down from 5.06% just before Friday’s jobs report.
More clarity will likely come this week when investors get the latest update on inflation.
A Bloomberg survey of 12 economists calls for a 6.5% jump in the Consumer Price Index in December, down from a 9.1% level in June.
A University of Michigan survey of US consumers showed year-ahead inflation expectations fell to the lowest level since June 2021 last month.
The U.S. dollar started the week to the downside re-testing a strong support level on the price of 103.3. This comes as no surprise, as the U.S. inflation expectation was changed from 6.7 last week to 6.5 this week.
Consequently, bullish steps were witnessed on other major indices such as EUR/USD, and GBP/USD, with weaknesses in USD/CAD, and USD/CHF.
As shown in the figure (Figure 1) below the dollar index is retracing off the 38.2% Fibonacci level, drawn in May 2021, while also breaking below the 50SMA on the Daily Timeframe, which implicates strong bearish momentum.
.png "US dollar index")
Figure 1: TradingView, Dollar Index
EUR/USD is testing its 3-week high of 1.074, which happens to be on a strong resistance line that has been tested over 3 times in the past month. Breaking this level might further push the pair to new yearly highs, testing the 1.078 level.
On the other hand, the GBP/USD pair will be under pressure on Friday the 13th of January as we will be expecting the release of GDP in the UK, which currently shows a slowdown in the economy.
A potential continuation of the trends might occur in the FX market as inflation figures in the U.S. seem optimistic.
However, before reaching that point, Powell’s speech on Tuesday will be the main driver, as his speech will mostly tackle the monetary approach that will be used in 2023.
Gold rose the previous week by 2.4% and for the third week in a row, while silver rose by 0.4% as a result of the decline in the US dollar.
This comes after investor expectations show that the US Federal Reserve will raise interest rates at a slower pace next month.
Eyes are on the US inflation data that will be released on Thursday 12 -1-2023, whereby, expectations indicate that inflation will rise by 6.5%, and this is the sixth decline in a row, and therefore this may positively affect metals.
From a technical point of view, gold is still moving within an upward trend in the short term, and levels near $1885 an ounce are considered important resistance levels for gold's movements.
As for silver, it is trading within an upward trend in the short term, and it is still trying to target the important resistance area near $24.4.
.png "XAUUSD")
(Figure 2): XAUUSD
.png "XAGUSD")
(Figure 3): XAGUSD
And It's the earnings season!
This week, many major companies are releasing their earnings mostly this Friday. If earnings beat the market’s expectation, this might help the stocks to move higher and vice versa.
JP Morgan Chase & Co (JPM) cut its 2023 earnings expectations for the firms in the S&P500 due to weaker demand, margin reductions, and restrained buy-backs with a consensus EPS for 2023 of $205 representing a 9% decline from an earlier expectation.
The semiconductor giant, TSMC, for instance, is expected to post $19.9-20.7B in revenues during Q4’2022, around 29% YoY growth. With a decline in demand for microchips and inventory adjustments, it is expected the company’s business would stabilize in Q4.
The largest health insurer, United Health Group (UNH), is expected to post EPS and revenues YoY growth of 15.4% and 12.275 % during Q4’2022, respectively. Last quarter, the company beat the market’s expectations by 6.24% to report an EPS of $5.79.
Due to the current market challenges and slower growth, Citigroup (C), the largest bank in the US, is expected to show an annual decline in profits with a Y-o-Y decline of 17.2% in the EPS, but a 4.92% YoY growth in revenues as interest rates hiked.
Some of the Upcoming Earnings during the upcoming week (09/01/2023-13/01/2023)
|
Date |
Stock |
Current EPS |
Expected EPS |
|
12/01/2023 |
Taiwan Semiconductor Manufacturing Company Ltd. (TSM) |
$1.79 |
$1.78 |
|
13/01/2023
|
United Health Group Incorporated (UNH) |
$5.79 |
$5.17 |
|
J P Morgan Chase & Co (JPM) |
$3.12 |
$3.16 |
|
|
Bank of America Corporation (BAC) |
$0.81 |
$0.83 |
|
|
Wells Fargo & Co (WFC) |
$1.3 |
$0.63 |
|
|
BlackRock, Inc. (BLK) |
$7.7 |
$7.84 |
|
|
Citigroup Inc. (C) |
$1.5 |
$1.21 |
|
|
Delta Airlines (DAL) |
$1.51 |
$1.35 |
Brent lost 8.6% last week closing back near the $78 support levels after ending its upward correction move to the $87 resistance level, Jan 3rd and 4th trading days were the most contributors to the down move، down from the open price at $85.84, (Fig1). Last week’s bearish engulfing candle arises the bias towards further decline to $75.16 weekly support zone.
.png "Brent weekly chart")
Figure 4 : Brent weekly chart- source: Trading view
WTI was down 8.6% last week closing near the week of November 28th, 2022 low - $73.64- support levels after ending its upward correction move to the $81.14 resistance level down from the open price at $85.84. Last week’s bearish engulfing candle arises the bias towards further decline to the $70 weekly support zone (Fig.2)
.png "WTI weekly chart")
Figure 4: WTI weekly chart- source: Trading view
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