Amazon and Snap, Jobs Data, Hawkish ECB and Texas Freeze - What's Moving Markets

© Reuters.

By Geoffrey Smith 

Investing.com -- Amazon (NASDAQ:AMZN) and Snap (NYSE:SNAP) put a trampoline under technology stocks, but U.S. markets are still set to open under pressure later. Markets bet on ECB rate hikes already by the end of the year, pushing the euro 2 cents higher against the dollar and Eurozone bond yields to multiyear highs. U.S. jobs data for January are due at 8:30 AM ET and Omicron suggests that the figures will be messy. And oil prices surge to new highs as Texas braces for a big freeze. Here's what you need to know in financial markets on Friday, 4th February. 

1. Amazon's too-good-to-be-true Q4

Amazon stock rebounded sharply after reporting a quarter that was flattered by a one-off gain on its stake in electric van maker Rivian (NASDAQ:RIVN). The $11.8 billion paper gain on Rivian, which went public in the fourth quarter, meant that net profit nearly doubled from a year ago. Rivian stock has fallen 40% since the end of the year, meaning that much of those gains will be reversed in the current quarter, absent a recovery in the EV-maker's performance.

Amazon Web Services continued to churn out cash, with an operating profit of over $5 billion, while the strength of its advertising business – broken out for the first time – also impressed. However, the company lost over $1.8 billion on its core e-commerce operations due to rising labor and transportation costs – something it aims to address with a 16% hike in its Prime subscription fee.

Amazon’s results may only partly allay fears that its pandemic-driven boom is fading: it sees operating income at between $3 billion and $6 billion in the current quarter, down from $8.9 billion a year ago.

2 Payrolls data due

The U.S. releases its official labor market report for January at 8:30 AM ET (1330 GMT), two days after payrolls processor ADP indicated that private-sector employment actually fell by over 300,000 through the middle of last month.

ADP’s figures were heavily affected by the wave of Omicron-variant Covid-19, which hit the service sector disproportionately hard.  

Consensus forecasts, which predate the ADP’s release, are for a gain of 150,000 nonfarm jobs last month, down from 199,000 in December. Given the hit to employment will once again hit (relatively low-paid) service sector work, the risk is that the Omicron wave also translates into an upside surprise on average hourly earnings, which are expected to rise 0.5% on the month.  

3. Stocks set to open mostly lower, but Snap snaps back

Amazon – and, to a lesser degree, Snap and Pinterest (NYSE:PINS) – are supporting NASDAQ futures in the overnight session, but U.S. stocks are set for a mixed opening later.

By 6:15 AM ET (1115 GMT), Dow Jones futures were down 178 points, or 0.5%, while S&P 500 futures were down 0.1%. Only NASDAQ 100 futures were up, rising 0.7%, and even that represents only a modest bounced after Thursday’s 3.7% drop in the NASDAQ Composite.

Snap stock was up more than 45% in premarket trading after it defied the general pessimism about long-duration tech stocks, posting its first-ever quarterly profit and seemingly putting problems with Apple’s new privacy settings behind it.

Other stocks likely to be in focus later include Ford Motor (NYSE:F), whose earnings fell short of expectations, and Clorox (NYSE:CLX), whose quarterly numbers were the latest to show some mean reversion after pandemic-era distortions.

4. Bonds tumble, euro rises as hawks are seen over Frankfurt 

Another factor weighing on global markets overnight has been the sharp repricing of euro interest rate risk, in response to ECB President Christine Lagarde’s press conference on Thursday. Money markets now imply 40 basis points of rate hikes from Frankfurt by year-end.

German benchmark 5-Year notes traded with a positive yield for the first time in nearly four years, while 10-Year yields touched a three-year high of 0.2%, while the euro has surged nearly 2 cents to $1.1466.

While the ECB’s statement had repeated that it doesn’t expect to raise interest this year, Lagarde pointedly avoided repeating that guidance in her press conference, acknowledging that inflation had risen further and was lasting longer than the bank had forecast, and appearing to set the stage for a shift in guidance at the bank’s meeting in March. 

5. Oil hits new highs ahead of Texas freeze

Oil prices roared above $90 a barrel on precautionary buying ahead of extreme winter weather that has been forecast for Texas.

Winter storms in Texas last year badly hit the state’s energy complex, freezing gas field well-heads and taking down power stations and transmission lines. So far, market operator ERCoT hasn’t reported any major disruptions, but it will need to bring some 10 gigawatts of largely gas-fired power online in the course of the morning to meet the expected demand surge.

U.S. crude futures meanwhile, were up 1.7% at $91.78 a barrel, while Brent crude futures were up 1.6% at $92.54, both having hit fresh eight-year highs earlier.