With more than 20 years of trading experience, Ed Moya is a Senior Market Analyst with OANDA, a leader in currency data, offering forex & CFD trading, corporate fx payments, and exchange rates services for a wide range of organizations and investors. The firm provides up-to-the-minute intermarket analysis, coverage of geopolitical events, central bank policies, and market reaction to corporate news.
Over the course of his career, Ed has worked with some of the leading forex brokerages, research teams and news departments on Wall Street including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. His particular expertise lies across a wide range of asset classes including FX, commodities, fixed income, stocks and cryptocurrencies.
Based in New York, Ed is a regular guest on several major financial television networks including CNBC, Bloomberg TV, Yahoo! Finance Live, Fox Business, and Sky TV. His views are trusted by the world’s most respected global newswires including Reuters, Bloomberg, and the Associated Press, and he is regularly quoted in leading publications such as MSN, MarketWatch, Forbes, Breitbart, The New York Times, and The Wall Street Journal. He holds a BA in Economics from Rutgers University.
Below is Ed’s commentary and economic analysis for the week ending February 4th.
Investments
US stocks traded mixed after a surprisingly strong employment report made some investors nervous the Fed will be forced to be much more aggressive with fighting inflation. The Nasdaq was boosted after yesterday’s flawless Amazon earnings report. Amazon delivered strong eps and AWS revenue beats reported a $12 billion gain from their bet on Rivian and raised their annual Prime membership prices. Investors care about Cloud growth and future profits and Amazon’s earnings report had all those boxes checked off.
The next couple of months should be very choppy for equity markets as Fed tightening certainty will clearly take a cue from how quickly supply chain issues improve. The Fed clearly is rushing to fix its mistake in tackling inflation and that surging the global bond yield environment will make it tough for risky assets. Selling into rallies may not become the dominant theme, but it is hard to imagine investors will be aggressively bullish here.
Financial and Economic Markets
Financial markets got stunned after a shockingly strong nonfarm payroll report. Many on Wall Street were expecting a negative number. Instead, we saw robust hiring, higher wages, and more Americans returned to the workforce. Treasury yields skyrocketed alongside the dollar following the impressive labor report that will fuel the inflationary theme that is driving markets. With a couple of hotter inflation reports coming before the March FOMC meeting, the base case is quickly becoming for the first-rate hike to be a half-point interest rate increase.
This employment report will not be shrugged off. The US economy gained 467,000 jobs in January, a strong beat of the 125,000 consensus estimate and a big surprise for many analysts expecting a negative print. December payrolls also had a very robust revision from 199,000 to 510,000. The labor force participation rate also improved from 61.9% to 62.2%, which is why the unemployment ticked higher to 4.0%. If it weren’t for the massive revisions, the participation rate would have stayed at 61.9%, which would still be well below the pre-pandemic level of 63.4%. What complicated this report was seasonal factors and that 6 million people were out of work due to COVID. The labor market is so tight that even a massive COVID surge can’t disrupt hiring.
Average hourly earnings were 5.7% higher in January compared with a year ago, which confirms the wage pressure companies are seeing.
The January nonfarm payroll report supports the argument that the Fed will do more to tackle inflation and that the yield curve will flatten. The 2-year Treasury yield rose 9.8bps to 1.298%, while the 30-year Treasury yield rose 4.9bps to 2.200%.
Oil
Crude prices seem to have a one-way ticket to $100 oil. This week’s rally in crude was supported by the OPEC+ decision to stick to their gradual increase strategy and as US production fell again. An arctic blast is also disrupting some production in Texas and that is driving this latest price surge.
Initially, crude prices pared gains after a shockingly strong NFP report sent yields and the dollar higher, but that was short-lived as energy traders realized that the key takeaway is that the Omicron wave did not lead to a major hiccup for the economy.
Everything seems to be turning very bullish for WTI crude and the bullish momentum might not see much resistance until the $95 level.
Gold
Gold prices got knocked down after a surprisingly strong nonfarm payroll report sent expectations soaring that the Fed’s near-term tightening will be much more aggressive. Talk of a half-point interest rate increase by the Fed in March is having many traders have to price in another rate hike this year by the Fed. Today’s NFP report exemplifies the growing concern that the Fed has taken too long to tackle inflation. Leading up to the March FOMC, this NFP report was not supposed to have a meaningful impact on rate hike expectations, but this was a shocker and has shifted Fed 2022 rate hike expectation ranges from 3 to 7 rate increase to at least 4 to 7 hikes.
The knee-jerk reaction for gold was a collapse below the $1800 level. The $1800 level is key for gold and if gold can continue to hover around it, that would be very positive for bullion bulls. If gold breaks below $1780, conditions could get treacherous and prices could see significant momentum selling target towards $1700.
Bitcoin
One of the most difficult environments for Bitcoin to face is surging Treasury yields. Today’s nonfarm payroll report was a shocker that sent Treasury yields higher as expectations for much more aggressive Fed tightening increases. Bitcoin pared earlier gains that stemmed from a tech-driven rebound that was sparked by Amazon. Bitcoin may have difficulty breaking above the $40,000 level if Wall Street grows confident that the Fed will raise rates by a half-point in March.
Bitcoin shrugged off the payroll slump and is rallying on momentum buying. The $40,000 ceiling may get tested.
