The Bank of England (BoE) kept its rates unchanged yesterday but opened the door to rate cuts mentioning ‘good news on inflation’. Cable rebounded despite a dovish takeaway from the MPC meeting as the US dollar fell sharply despite better-than-expected ISM manufacturing survey. In the euro area, inflation fell slower than expected in January. Combined with a softer US dollar, the EUR/USD jumped from 1.0780, a few pips above the 100-DMA. The Swedish Riksbank also held rates steady yesterday and gave the happy news that a rate cut will be coming in H1.
The year starts with the sweet smell of the upcoming interest rate cuts, like a freshly baked apple pie ready to come out of the oven. We can’t wait to have a taste of it before the commercial real estate dives into darkness with more than half of commercial loans in the US due to come to maturity by the end of 2025 – and these loans make up to almost 30% of the small banks’ assets. So, let’s hope that the Fed won’t burn the pie.
Happy US Jobs Day!
The US is expected to have added less than 200K jobs this January, for around the same pay growth of 4.1% and the unemployment rate is seen ticking slightly higher to 3.8%. A reasonably weak number should revive the Federal Reserve (Fed) doves, while a strong number should melt the March rate cut expectations. The probability of a March hike fell to 35% after the Fed said that March was probably too early to cut rates – while this probability was around 80% at the start of the year. Everyone is focused on the May meeting now, with more than 90% probability priced in for the first Fed cut.
The rationale with the jobs data is, the softer the data, the sooner the Fed could start cutting rates. And with the number of layoff news on the newswire, it looks safe to bet that today’s NFP will be as soft as Wednesday’s ADP report. But note that Fed Chair Jerome Powell said that they sense that the US economy is accelerating based on anecdotes and chats with the private sector. And that’s not in line with the layoff news that crowd the headlines. A reasonably soft jobs data is good for the Fed doves and should further weigh on the US dollar, a stronger-than-expected figure – if not abnormally strong - should not impact the May cut expectations and keep the dollar bulls contained.
Earnings Roundup
Three US tech giants revealed their Q4 results yesterday after the bell and the results were mixed. Meta (NASDAQ:META) jumped 15% in the after-hours trading – the kind of post-earnings move we love to see - after its revenue jumped 25% compared to the same time a year ago. The company gave a bright sales forecast and announced a $50bn buyback and its first-ever dividend of 50 cents starting from March. As such, Meta will jump past the $400 per share at open and hit a fresh record. What a comeback!
Amazon (NASDAQ:AMZN) gained a bit more than 2.5% after reporting strong sales and gave a better-than-expected operating income. AWS made only 13% more compared to the same time last year and that’s well shy of Microsoft (NASDAQ:MSFT) and Google’s, but it’s not about how much you grow but how much you grow compared to expectations; the 13% growth was well-digested. Amazon could extend gains and eventually return to its long-term ascending base. Amazon lacks colour compared to its Magnificent 7 buddies which run from record to record. But the company has the potential to develop its cloud business and integrate AI on it.
Less enthusiastic, Apple shares (NASDAQ:AAPL) almost 3% in the after-hours trading as sales in China dropped 13%. The company, however, returned to growth after four quarters of contraction and overall iPhone sales were beat. But investors couldn’t get over the worsening outlook in China. Maybe it’s time for Apple to look for another milk cow. India, maybe?
Today, Exxon (NYSE:XOM) and Chevron (NYSE:CVX) are due to announce how well they did last quarter. Yesterday, Shell announced a $28bn profit and $3.5bn share buyback. The $28bn is much lower than the $40bn the company announced in stellar 2022 – after Russia invaded Ukraine, and oil’s inability to gain sustainable positive momentum remains a headache for oil revenues, but Shell (LON:SHEL) jumped 2% after the results, OPEC signaled that it will keep oil restrictions intact until the end of this year, and US crude fell below the $74bn as the US could choose not to escalate tensions with Iran after the weekend attacks. But is it the calm before a storm? Time will tell. Geopolitical risks prevail and oil should find support near the $73-73.50 region, which includes the 50-DMA.