US stocks extended gains on Thursday as banks and big tech led the rally. The S&P500 and Nasdaq 100 renewed record on the back of solid corporate earnings, strong economic data combined with the ultra-loose Federal Reserve (Fed) policy and Joe Biden’s efforts to pass a $1.9 trillion fiscal aid package without Republican agreement.
So far this week, strong economic and corporate data doesn’t seem to bother investors too much regarding the generosity of the Fed and the government. But that could change in a matter of seconds. A too strong data could revive the Fed doves and dash hopes of seeing Biden’s $1.9 trillion hitting the street.
European indices gained, except from the FTSE (-0.06%) which abruptly left the race amid the Bank of England (BoE) didn’t sound credible enough when announcing the possibility of negative rates, as it also said to expect a solid post-pandemic rebound , which was heard by investors that there is little chance that we ever need to pull rates lower.
The US 10-Year yield jumped to 1.13%, as capital moved towards riskier equities. Bitcoin rose a touch below $38K before retreating aggressively to $35K.
Gold dived below $1800 per ounce as the steep rise in treasury yields increased the opportunity cost of holding gold, at a time when gold-bulls were already struggling to fight back the bears near the $1800 support as hedging against a sizeable correction becomes unjustifiably expansive as all piece of news, good or bad boost the risk rally.
Activity in European futures hint at a positive start and consolidation of weekly gains before the closing bell, while appetite in FTSE will likely remain limited due to the BoE-boosted pound Sterling and despite firm commodity and oil prices.
TGI - NFP - F
Today is the NFP day. The US will reveal how many non-farm jobs it added during the first month of the year and the expectation is 50’000 new non-farm jobs versus 140’000 jobs lost a month earlier.
On Wednesday, the ADP report surprised to the upside, printing a solid 174,000 private jobs additions last month, bringing some to think that we could see a similar positive surprise at today’s NFP release. However, it’s worth noting that the correlation between the ADP and NFP is not strong enough to use the ADP (NASDAQ:ADP) number as an indication of the upcoming NFP figure.
But the rebound in the most recent PMI data hints at a better-than-expected recovery in US economic activity in January, and we have seen three-consecutive-week fall in unemployment claims following a jump earlier in the year. So, there are factors that would support the expectation of a stronger NFP figure this month,
Either way, it’s hard to predict how investors would behave faced with a good or a bad data. A strong figure seems unlikely to discourage risk lovers, but a too strong data could weigh on investor sentiment and lead to some profit taking in risk positions. What's the limit between strong and too strong is anybody's guess.
A beginner's mistake from the BoE
The Bank of England (BoE) maintained its monetary policy unchanged at Thursday's monetary policy meeting and asked banks to be prepared for negative rates. But that statement sounded a lot like a formality as investors were waiting for it, and didn’t necessarily come from the heart of policymakers who actually pointed at a rapid economic rebound despite lowering their economic outlook.
What investors heard was that the BoE is ready to move negative on rates, but there will probably be no need for such action. As a result, the major take from that meeting was optimism, which sent the British 10 and 30-year sovereign bond yields to their highest levels since March.
GBP/USD jumped after hitting a two-week low as BoE hawks rushed in, and FTSE gave back early gains on stronger pound and ended an otherwise good day elsewhere in the negative.