NAS100 Weighed as Strong US Jobs Report Leads to Market Repricing

NAS100 Analysis

NAS100 rose to the highest level since August last Thursday, after the US Federal Reserve had downshifted again, with a 25 basis points rate increases. The bank maintained its hawkish rhetoric, with Chair Powell noting that policy is "not yet in a sufficiently restrictive" setting, speaking of "a couple of more rate hikes" and expressing the view that it "would not be appropriate to cut rates this year". [1]

However, he did not shut the door to such an outcome in case of inflation coming down "much more quickly", he acknowledged the start the "disinflationary process" and did not clearly validate the bank's most recent projections for a median terminal rate of 5.1%, in a press conference that did not sound forceful.

Then came Friday's surprisingly strong Jobs reports, that revealed the addition of more than 500K payrolls in January and the unemployment dropping to 3.4% and the lowest since 1969. This lead to a hawkish repricing in expectations, as markets now embrace the Fed's view on the terminal rate. At the time of writing, CME's FedWatch Tool assigned the highest probability to rates peaking at 5.25% (from 5% previously), but still points to cuts towards the end of the year. [2]

This pressured NAS100 on Friday along with mostly disappointing results from Big Tech, despite excitement around the results of Meta Platforms. Apple posted a 5% y/y Revenue decline, Amazon's guidance was underwhelming and Alphabet's YouTube and Google advertising sales were received with dismay.

Today, the tech-heavy index takes another push lower, as investors digest heightened Sino-US tensions, after a Chinese balloon flew over the United States. The US Department of Defense described it as a "surveillance" balloon and shot it down over the weekend [3], whereas Secretary of State Blinken had postponed plans for a China visit due to the incident. [4]

These pressures create risk for a correction towards 12,050-000, but a significant deterioration is sentiment would be required for a bigger decline that would threaten the EMA200 (12,700). Daily closes below it would pause the upside momentum, but we are cautious about sustained weakness below this region.

Despite the market repricing around the Fed after the blockbuster employment report, the end of the current rate hike cycle seems near, while from a technical prospective, a limited pullback can help NAS100 find room for a move to higher highs. Bulls have not given up the initiative and can challenge the 13,000 handle, but further advance towards 13,724 may prove elusive.

Market participants now turn to Chair Powell speech at the Economic Club of Washington on Tuesday, which can determine the next leg of the move.

Nikos Tzabouras

Senior Financial Editorial Writer

Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.

With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.

References

1

Retrieved 06 Feb 2023 https://www.federalreserve.gov/monetarypolicy/fomcpresconf20230201.htm

2

Retrieved 06 Feb 2023 https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html

3

Retrieved 06 Feb 2023 https://www.defense.gov/News/Releases/Release/Article/3288535/statement-from-secretary-of-defense-lloyd-j-austin-iii/

4

Retrieved 23 May 2024 https://www.state.gov/secretary-antony-j-blinken-and-republic-of-korea-foreign-minister-park-jin-at-a-joint-press-availability-2/

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