Financial Markets Today: Quick Take – February 1, 2023

Financial Markets Today: Quick Take – February 1, 2023

Macro 6 minutes to read
Saxo Be Invested
Saxo Strategy Team

Summary:  Another day brought another sharp direction change as markets rallied steeply from the prior day’s funk, with the Nasdaq 100 index crossing back above the 200-day moving average, which has been in play in recent days. Heavy anticipation ahead of tonight’s FOMC meeting and whether the Powell Fed will confirm the market’s view of imminent peak rates at the next meetings or two after today’s. Key US economic data also up through Friday’s US jobs report.


What is our trading focus?

Equities: Earnings breathed new life into momentum

The earnings releses yesterday helped aggregate earnings q/q to improve for Q4 easing some of the concerns around earnings recession, but despite better than feared Q4 figures many companies are still cautious on their Q1 outlook. Indicators suggesting wage costs are easing in the US also helped drive sentiment back into positive mood on top of the market betting the Fed might blink after all tonight on its monetary policy trajectory. S&P 500 futures rallied 1.9% from the intraday lows yesterday into the close around the 4,085 level. US equity futures are stabilising this morning around yesterday’s close and we expect little action ahead of tonight’s FOMC rate decision.

Hong Kong’s Hang Seng (HIG3) and China’s CSI300 (03188:xhkg) pause during lackluster session

The Hang Seng Index took a pause in its retreat and consolidated with a modest 0.6% gain. CSI 300 traded sideways and was up 0.3% as of writing. Caixin China Manufacturing PMI came in weaker than expected at 49.2 in January (vs consensus: 49.8; Dec: 49.0), the sixth month in the contraction territory. According to the chief economist at Caixin, optimism has improved in the manufacturing sector but both domestic and external demand, and logistics were yet to fully recover. Baidu (09888:xhkg) and BYD (01211:xhkg) each surged 5.8% and were the biggest winners within the Hang Seng Index. Shares in Baidu, the Chinese search engine, were boosted by chatters that Baidu was developing an AI-powered chatbot similar to ChatGPT. BYD extended yesterday’s gain after reporting a preliminary 2022 profit of RMB 6.7 – 7.7 billion which represents a 425% to 458% growth from a year earlier. ChatGPT concept stocks also advanced in the mainland’s A-share market.

FX: Dollar pounded back lower on broad sentiment recovery

Yesterday brought another sharp direction change in sentiment, with a souring mood suddenly gathered up by the beginning of the US session yesterday after the US dollar had rallied sharply, seemingly in recognition of the blitz of event risks in coming days, starting of course with tonight’s FOMC meeting. EURUSD found support ahead of 1.0800 and rallied back toward 1.0875 into this morning. AUDUSD found support just below 0.7000 and bounced back, etc. A key test for central bank guidance and how much the market buys into that guidance in coming days, as the market continues to price for imminent peak Fed policy rate, with perhaps one more 25 basis point hike after tonight’s presumed 25 basis point hike before a pause. The ECB, meanwhile, is seen hiking 50 basis points tomorrow and then tacking on at least another 100 basis points of hiking at coming meetings. Will markets listen to central bank guidance, or will incoming data rule the day in coming days and weeks? The market has persistently ignored Fed guidance for policy beyond the next few meetings.

Crude oil (CLH3 & LCOJ3) recovers as long liquidation pressures ease ahead of OPEC and Fed

Crude oil prices found support on Tuesday as technical, not fundamental, selling pressure from funds started to ease. Money managers added 95 million barrels during a two-week period to January 24 and the subsequent failure to break higher last week triggered a period long liquidation. With that pressure reduced the market may once again focus on current fundamentals which on balance remains supportive as China recover while the supply outlook remains uncertain with the upcoming threat to supply from the next round of sanctions against Russian sales of fuel products. Focus on FOMC meeting, OPEC+ JMMC recommendations, and EIA’s weekly stock report after the API reported a 6.3-million-barrel increase.

Gold (XAUUSD) holds its line of support

Gold passed its first proper correction attempt since mid-December with flying colours on Tuesday, when a slump to key support in $1900 area was followed by a 30-dollar bounce back, supported by a weaker dollar after it also failed in its correction attempt to move higher. The US employment costs eased last quarter (see below), thereby supporting an expected 25bp rate hike from the FOMC today, action that is expected to be followed up by hawkish comments in order to send strong a message that cuts are not on the table anytime soon. The World Gold Council reported that demand for gold rose around 20% in 2022 to its highest since 2011, driven by “colossal” central bank demand, at 1,136 tons the highest in 50 years. It highlights the reason why gold did so well last year despite surging real yields and the much stronger dollar. Support at $1900 & $1865.

Copper’s shallow correction points to more strength

Copper, just like gold, managed to find support after an end of month selloff was halted before the technical picture managed to turn negative. HG Copper bounced before reaching its 21-day moving average, today at $4.13/lb (LME at $9100), and its 38.2 fibo retracement at $4.11/lb (LME at $9030). The bounce back being supported by a weaker dollar following the weaker-than-expected US employment cost index. Focus on the FOMC and its impact on the dollar as well as ongoing supply disruptions in Peru underpinning prices while awaiting an expected pickup in demand from China.

Yields on US Treasuries (TLT:Xmas, IEF:xnas, SHY:xnas) dip as the Employment Cost Index softened.

Bids came into the front end to the belly of the Treasury curve following the growth in the U.S. employment cost index, a preferred wage and benefit barometer of the Fed came in at 1% in Q4, below the 1.1% expected, and decelerated from 1.2% in Q3. The 5-year notes outperformed with a 5bp drop in yield to 3.62%. Yields on the 2-year and the 10-year were 3bps lower to 4.20% and 3.51% respectively. Gabriel Rubin and Nick Timiraos of the Wall Street Journal suggested that the cooler worker compensation gains increased “the possibility of a pause in rate rises this spring”.

What is going on?

US earnings recap: Caterpillar, UPS, and Snap

Q4 earnings have been mixed relative to expectations so far but yesterday’s earnings releases lifted the mood. But not all earnings were positive. Caterpillar delivered Q4 revenue of $16.6bn vs est. $15.9bn while EPS missed slightly against estimates. Despite putting out a positive outlook for 2023 due to favourable prices, shares were down 4% during the trading session. Caterpillar said on the conference call that prices in 2023 will offset manufacturing costs and North America construction is seeing good momentum while China is still slow and will be below 2022 levels. UPS misses on revenue but EPS beats despite average revenue per package coming in lower than estimated most likely due to cost cutting exercises. The logistics company is authorizing a new share buyback programme of $5bn. UPS 2023 outlook on revenue came in lower than expected and management said on the conference call that Europe is likely in a recession in the first half of 2023 and China should recover after Q1; it also said that Amazon’s share of volume declined to 11.3% in 2022 from 11.7% in 2021. Snap reported after the market call Q4 revenue of $1.3bn in line with estimates and EPS was $0.14 vs est. $0.11. Snap said revenue was down 7% year-to-date vs their own internal forecast of -10% to -2%. Shares were down 15%.

Strong earnings from Novo Nordisk driven by obesity drug

Novo Nordisk has reported Q4 earnings this morning in Europe with Wegony (obesity drug) revenue at DKK 2.5bn vs est. DKK 1.7bn helping overall revenue to beat estimates. The company is additionally putting out a very optimistic 2023 outlook on revenue and operating income of 13-19% on top of a big share buyback programme of DKK 28bn.

US economic data still supporting a smaller rate hike

The Fed’s preferred measure of wage gains, the employment cost index, slowed to 1% last quarter from +1.2% in Q3, coming in a notch softer than the expected at 1.1%. The fall was led by wages and salaries falling to +1.0% from +1.3%, while benefit costs fell to +0.8% from +1.0%. While the report signals that wage pressures may be easing and could mean that the Fed’s against inflation is working, more data will be needed to confirm the trend. Meanwhile, US consumer confidence in January dipped to 107.1, short of the expected 109.0 and the prior, revised higher, 109.0. The present situation index encouragingly rose to 150.9 (prev. 147.2), but the forward-looking expectations index declined to 77.8 (prev. 82.4). Chicago PMI slightly declined in January to 44.3 from 45.1, beneath the expected 45.0.

The coffee short squeeze gathers momentum

Coffee jumped 6.7% on Tuesday, thereby adding momentum to the strong recovery that has seen the quality bean surge 29% during the past two weeks to reach a three-month high at $1.82/lb. The fundamental driver being a deteriorating outlook for coming season in Brazil forcing a major turnaround from hedge funds who in recent weeks had amassed the biggest net short in more than three years. It highlights the importance of watching the weekly COT update as a change in the technical and/or fundamental outlook can have an outsized price impact when positions are elevated.

What are we watching next?

Test of central bank messaging and whether market is listening.

The FOMC meeting is up tonight, with the general narrative that the FOMC and Chair Powell will continue to push back against expectations for the Fed to reach peak policy rates after perhaps one more 25 basis point hike after today’s and then begin cutting rates by year-end. But as the market has ignored Chair Powell’s protestations on the market’s forward expectations before, it is tough to see how he makes a strong impression unless taking drastic (and unlikely) measures like hiking the policy rate 50 basis points. Incoming data, starting with the upcoming ISM’s (today and Friday) and the Friday jobs and earnings data, may weigh more in the pricing of the Fed policy rate from here. The ECB is up tomorrow and is expected to confirm the markets view of significant further tightening in the pipeline after another 50 basis point hike. The Bank of England tomorrow is less certain, as the BoE may try to sneak in more cautious guidance, given the weak performance of the UK economy.

Earnings to watch

Our US earnings focus today is Meta and Southern Copper with Meta likely to reflect the weakness in online advertising that Snap communicated last night in their Q4 earnings release. Meta is expected to report Q4 revenue growth of –6% y/y and guide Q1 revenue growth of –2% y/y which could prove to be too positive given Snap’s indications on year-to-date revenue growth of –7%. Southern Copper is expected to report Q4 revenue growth of –13% y/y and EPS of $0.81 down 31% y/y.

  • Today: Novo Nordisk, Orsted, Keyence, Hitachi, GSK, BBVA, Novartis, Meta, Thermo Fisher Scientific, Southern Copper
  • Thursday: DSV, Dassault Systemes, Siemens Healthineers, Infineon Technologies, Deutsche Bank, Sony, Takeda Pharmaceutical, Shell, ING Groep, Banco Santander, Siemens Gamesa Renewable Energy, Nordea, Roche, ABB, Apple, Alphabet, Amazon, Eli Lilly, ConocoPhillips, Qualcomm, Honeywell, Starbucks, Gilead Sciences, JD.com, Ford Motor, Ferrari
  • Friday: Coloplast, Sanofi, Intesa Sanpaolo, Denso, CaixaBank, Naturgy Energy, Assa Abloy, Regeneron Pharmaceuticals

Economic calendar highlights for today (times GMT)

0815-0900 – Eurozone Final Jan. Manufacturing PMI

1000 – Eurozone Jan. CPI estimate

1315 – US Jan. ADP Private Payrolls change

1500 – US Jan. ISM Manufacturing

1530 – EIA's Weekly Crude and Fuel Stocks Report

1900 – FOMC Meeting

1930 – US Fed Chair Powell press conference     

2130 – Brazil Selic Rate

0030 – Australia Dec. Building Approvals

0030 – Australia NAB Business Confidence

Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app:

Apple Sportify Soundcloud Stitcher

Quarterly Outlook

01 /

  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

  • Equity Outlook: Will lower rates lift all boats in equities?

    Quarterly Outlook

    Equity Outlook: Will lower rates lift all boats in equities?

    Peter Garnry

    Chief Investment Strategist

    After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto...
  • FX Outlook: USD in limbo amid political and policy jitters

    Quarterly Outlook

    FX Outlook: USD in limbo amid political and policy jitters

    Charu Chanana

    Chief Investment Strategist

    As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ...
  • Macro Outlook: The US rate cut cycle has begun

    Quarterly Outlook

    Macro Outlook: The US rate cut cycle has begun

    Peter Garnry

    Chief Investment Strategist

    The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c...
  • Commodity Outlook: Gold and silver continue to shine bright

    Quarterly Outlook

    Commodity Outlook: Gold and silver continue to shine bright

    Ole Hansen

    Head of Commodity Strategy

  • FX: Risk-on currencies to surge against havens

    Quarterly Outlook

    FX: Risk-on currencies to surge against havens

    Charu Chanana

    Chief Investment Strategist

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo...
  • Equities: Are we blowing bubbles again

    Quarterly Outlook

    Equities: Are we blowing bubbles again

    Peter Garnry

    Chief Investment Strategist

    Explore key trends and opportunities in European equities and electrification theme as market dynami...
  • Macro: Sandcastle economics

    Quarterly Outlook

    Macro: Sandcastle economics

    Peter Garnry

    Chief Investment Strategist

    Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p...
  • Bonds: What to do until inflation stabilises

    Quarterly Outlook

    Bonds: What to do until inflation stabilises

    Althea Spinozzi

    Head of Fixed Income Strategy

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ...
  • Commodities: Energy and grains in focus as metals pause

    Quarterly Outlook

    Commodities: Energy and grains in focus as metals pause

    Ole Hansen

    Head of Commodity Strategy

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...
Disclaimer

The Saxo Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-hk/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo or its affiliates.

Saxo Capital Markets HK Limited
19th Floor
Shanghai Commercial Bank Tower
12 Queen’s Road Central
Hong Kong

Contact Saxo

Select region

Hong Kong S.A.R
Hong Kong S.A.R

Saxo Capital Markets HK Limited (“Saxo”) is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo holds a Type 1 Regulated Activity (Dealing in Securities); Type 2 Regulated Activity (Dealing in Futures Contract); Type 3 Regulated Activity (Leveraged Foreign Exchange Trading); Type 4 Regulated Activity (Advising on Securities) and Type 9 Regulated Activity (Asset Management) licenses (CE No. AVD061). Registered address: 19th Floor, Shanghai Commercial Bank Tower, 12 Queen’s Road Central, Hong Kong.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products may result in your losses exceeding your initial deposits. Saxo does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo does not take into account an individual’s needs, objectives or financial situation. Please click here to view the relevant risk disclosure statements.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-hk/about-us/awards.

The information or the products and services referred to on this site may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and services offered on this website are not directed at, or intended for distribution to or use by, any person or entity residing in the United States and Japan. Please click here to view our full disclaimer.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc. Android is a trademark of Google Inc.