Tech drives stocks to new highs as jobs data stays tight
* Dollar holds near five-week peak as Fed rate cut bets tempered
* TSMC predicts revenues could grow 26% this year on AI boom
* ECB officials converge around June to start cutting rates
* China’s deflation is led by goods, adding trade tension risk
FX: USD was in the green again for a fifth day in a row. But the index did print a doji candle. Prices are trading around the 200-day SMA at 103.45. The weekly jobless claims data printed their lowest since September 2022 and highlighted continued tightness in the labour market. Ongoing claims touched their lowest level since October. Yields pushed higher with the 10-year now above the 200-day SMA. Seasonal trends are also in favour of the greenback.
EUR bounced off its 200-day SMA again at 1.0845. ECB speakers this week are pointing to a rate cut in June when staff projections are released. The blackout period for officials has started with the ECB meeting next Thursday. There’s now only around a 20% chance of March rate cut.
GBP remains relatively buoyant as the best major performer so far on the week. Yesterday’s CPI beat has seen cable rebound from the lower levels of the recent range. Support around 1.26 is bolstered by the 50-day SMA at 1.2609. Retail sales are released today.
USD/JPY is moving closer to the week’s highs at 148.52. Treasury yields remain supported as markets have reassessed rate cut expectations.
AUD is mildly outperforming on the improved risk mood. The aussie has ignored much weaker headline jobs data. But the fall comes after strong October and November growth. The jobless rate remained steady at 3.9% and the participation rate held near historic highs. This points to ongoing tightness in labour market. Quarterly inflation data is released on 31 January.
Stocks: US equities jumped higher on tech gains, and specifically a semiconductor surge. The benchmark S&P 500 added 0.88% to settle at 4,780. The tech-laden Nasdaq 100 advanced 1.47%to finish at 16,982. The Dow Jones underperformed, closing 0.54% higher at 37,468. Tech was the standout sector rising over 2% while utilities lost over 1%. Apple added over 3% on a Bank of America upgrade. Analysts cited a stronger multi-year iPhone upgrade cycle plus higher growth in services.
Asian futures are higher. APAC stocks were mostly lower on Thursday as the unwinding of rate cuts continued. The ASX 200 was dragged down by miners and BHP’s lower quarterly iron ore output. Shanghai slid to its lowest levels since 2020 after this week’s poor data and rate disappointment.
Gold stemmed two days of strong selling and traded back above its 50-day SMA at $2018. The strong dollar-led selloff this week has been given some additional momentum by long liquidation from hedge funds. With the Fed signalling patience regarding the timing and pace of future rate cuts, price action in USD is key.
Day Ahead Data Focus – UK Retail Sales
Expectations are for headline retail sales to contract 0.4% m/m in December, with the annual measure seen at +1.1% m/m. The monthly core is forecast at -0.5%, and the annual gauge at +1.6%. Economists reckon the festive period failed to make amends for a challenging year of sluggish retail sales growth. Weak consumer confidence continued to hold back spending.
With the unemployment figures tricky to read currently with some experimental data, the UK consumer continues to face sticky inflation which is pushing back rate cuts. A sizeable chunk of UK homeowners will also be refinancing their mortgages this year. Average rates have come down but will still be a couple of % points higher than their previous levels, so potentially hurting consumer activity.
Chart of the Day – Nasdaq hits the highs
You can’t keep a good index down! The tech-dominated Nasdaq 100 made a fresh all-time peak at the end of last year just shy of the landmark 17,000 level. Prices dipped below 16,400 in the first week of the new year. But since then, they have rebounded with yesterday printing a new record high. Chipmakers are fuelling the recent rally after TSMC’s upbeat Q4 results. Key was its forecast of more than 20% revenue growth this year, driven by demand for advanced chips used in AI applications.
This has seen Nvidia make new record highs, with the stock price soaring over 15% already this year. The AI theme in 2024 is expected to shift from the “enablers” to the “adopters”. But the latter are still powering ahead, and the focus will be on Super Thursday in two weeks’ time when Alphabet, Amazon, Apple and Meta all report.