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Last week’s bear market rally in US equities looks more likely to be fragile.
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Trends & Analysis
Analysis
Last week’s bear market rally in US equities looks more likely to be fragile.
News
FedEx delivers revenue concerns, but shares rise
News
US dollar retreats amid growth concerns

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News

Wall Street Ends a Volatile Month on a Strong Note

The news shaping the markets today

Australia’s retail sales declined by 4.4% in December amid the rapid spread of Omicron. Despite this being the first contraction in monthly retail trade in four months, the AUD/USD forex pair remained elevated after the news.


New Zealand reported a trade deficit of NZ$477 million in December, versus a year-ago surplus of NZ$74.95 million. However, the NZD/USD pair rose in forex trading this morning.


Japan’s unemployment rate fell to 2.7% in December, from 2.8% in the previous month, lending support to the JPY/USD forex pair.


Greece’s retail trade growth accelerated to 14.7% year-over-year in November, from 7.9% growth a month ago. However, the EUR/USD pair declined slightly in forex trading this morning.


South Korea recorded a trade deficit of $4.89 billion in January, versus a surplus of 3.76 billion in the year-ago month. This being the second consecutive month of a trade deficit exerted pressure on the KRW/USD forex pair.

 

What’s happening
US stocks recorded gains on Monday, the last trading session of the month.

What happened
Wall Street remained highly volatile in January but ended the month on an upbeat note. Despite the gains on Monday, a correction in US equities ran its course in January. One of the major indices recorded its steepest January-month decline since 2009.

Why it matters
The US Federal Reserve signalled last week that it could increase interest rates more aggressively than earlier anticipated in a bid to tackle rising inflation. There were market speculations of 5 quarter-percentage-point hikes in interest rates by yearend. In fact, Bank of America analysts projected 7 rate hikes this year.

Rate hikes typically have a dampening impact on stock market sentiment, especially for growth stocks. Investors were also concerns about escalating geopolitical tensions, with Russia increasing its troops on Ukraine’s border. Investors also remained on the sidelines due to supply chain issues.

“We continue to believe the economic conditions are favourable and the recent weakness is not a systematic problem, but rather a valuation reset due to the swift change with investors’ expectations for the future path of rates,” analyst JC O’Hara of MKM Partners said in a note to clients.

As markets digested rate-hike concerns, stocks responded to positive economic data, robust company earnings reports and news of declining covid-19 daily cases in the US. Stocks of both Tesla and Netflix jumped around 11% on Monday after analyst reports projected a bright future for the companies.

The Dow Jones Industrial Average gained 406.39 points to settle at 35,131.86, recording a 3.3% monthly decline. The S&P 500 rose 1.89% to close at 4,515.55 but ended the month with a 5.3% loss. This made January the worst month for the S&P 500 since the pandemic-led downturn in March 2020 and represented the steepest January decline since 2009.

The Nasdaq 100 extended Friday’s gains, rising 3.29% to settle at 14,930.05 on Monday. The tech-heavy index lost 8.9% in January, also recording its worst month since March 2020.

What to watch
Investors will monitor the earnings season, with mega-caps like Amazon, Alphabet, and Meta Platforms set to release their reports this week. As of Friday, around one-third of S&P 500 firms had reported results, of which around 77% reported upbeat earnings. The release of the NFP (nonfarm payrolls) report, due this Friday, will also remain in focus.

The markets today

The Canadian dollar will be in focus today ahead of a couple of economic reports from the country.

Context
The CAD/USD forex pair rose on Monday, cutting back some of the losses recorded in January.

Details

The CAD/USD forex pair remained under pressure for most of January, with growing expectations of aggressive rate hikes by the US Federal Reserve boosting the US dollar versus a basket of major peers.

Although the Bank of Canada held its benchmark interest rate at a record low of 0.25% last week, BoC Governor Tiff Macklem indicated that the central bank intends to begin raising rates soon to combat increasing inflation.

The Canadian dollar recovered during the final trading session of January, with stocks markets around the world strengthening following a volatile start to the year.

The rise in prices of crude oil, which is one of Canada’s main exports, also provided support to the loonie. WTI crude oil prices gained around 1.5% to close at $88.15 a barrel on Monday, notching its biggest monthly rise in around a year.

The CAD/USD forex pair rose around 0.5% to close at 1.2708 on Monday.

What to watch: Traders await economic data on GDP growth and manufacturing PMI from Canada today. The Canadian economy, which expanded 0.8% in October, is expected to grow by 0.3% in November. The IHS Markit manufacturing PMI is projected to decline slightly to 56 in January, from 56.5 in December.

Investors will also keep an eye the release of Canada’s jobs report for January, due on Friday.

Other Markets
European trading indices closed mostly higher on Monday, with the DAX 40, CAC 40 and STOXX Europe 600 up by 0.99%, 0.48% and 0.72%, respectively, and the FTSE 100 traded lower by 0.02%.

Support & resistances for today

Technical Levels News Sentiment

EUR/USD – 1.1229 and 1.1235



Positive


USD/CAD – 1.2709 and 1.2714


Negative


Nasdaq 100 – 14,825.43 and 14,981.84


Positive


S&P 500 – 4472.86 and 4498.21


Positive


Dow Jones – 34,985.94 and 35,218.53 Negative

 

Market snapshot

What else to watch today

Germany’s retail sales, unemployment rate, number of unemployed persons, unemployment change and manufacturing PMI, Turkey’s manufacturing PMI, UK’s nationwide housing prices, consumer credit mortgage approvals, mortgage lending, and manufacturing PMI, France’s inflation rate, car Registrations and manufacturing PMI, Spain’s manufacturing PMI and total vehicle sales, Italy’s manufacturing PMI, car registrations and unemployment rate, Eurozone’s manufacturing PMI and unemployment rate, South Africa’s manufacturing PMI and total vehicle sales, Brazil’s producer prices, balance of trade and manufacturing PMI, Mexico’s manufacturing confidence index and manufacturing PMI, as well as US Redbook index, manufacturing PMI, job openings, construction spending, ISM manufacturing PMI, Dallas Fed services index and API crude oil stocks.


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