Weekly market report – 10 Jan 2022

US Indices

Markets started the year on a sour note as the S&P fell over 2%, Nasdaq was down by around 5%, and Dow Jones was nearly negative, around the 0.9% mark. Growth sectors such as the technology and the discretionary sectors did not perform up to par, while value sectors such as energies and financial services sectors held up for the week. Furthermore, Mega cap technology stocks like Netflix, Microsoft, and Alphabet were down between 6% to 10% last week.

This happened mainly due to the rise in Treasury yields, which was driven by the hawkish comments released from the FOMC meeting on Wednesday, 5 January 2022, suggesting a more positive outlook for further rate hikes and asset tapering. As a result, the 10-year Treasury yield went up from 1.34% last December to around 1.80% last week. 

The economic data released last week was mixed with the Institute for Supply Management (ISM) data for both manufacturing and service sectors missing its mark. The Non-Farm payrolls fell short of its expected target of 400,000 newly created jobs. Meanwhile, the average hourly earnings rose to 0.6% in December, beating the estimate of 0.4%. This contradictory data suggested that many Americans preferred self-employment, given that 4.5 million people quit their jobs in November 2021.

Highlights for this week include Fed Chairman Jerome Powell's nomination hearing before the Senate Committee on Banking, Housing, and Urban Affairs, in which he will be expected to offer more information about his hawkish comments last week. In addition to this, the Consumer Price Index (CPI) and Producer Price Index reports are scheduled for the week. Economists expect another hot month for both the readings, whereas few believe that inflation may have peaked, with November's CPI reading being the highest since 1982. Traders will also continue to keep an eye on the yields as Tech and Growth stocks are most sensitive to the rising yields.

Forex

In the Forex market, the US Dollar had a disappointing start to the year. Alongside, the Dollar Index added +0.07%, but most gains were erased following the middling December jobs report. Additionally, EUR/USD rates finished lower by -0.20%, while USD/JPY rates added +0.33%. In comparison, GBP/USD rose +0.39% despite trends.

Friday, 7 January 2022 saw the US dollar lose ground against the Euro due to the disappointing December jobs report. The single currency soared, and the greenback weakened after the US Labor Department said non-farm payrolls rose by 199,000 last month, well short of the 400,000 estimate.

Despite the poor overall report, the unemployment rate fell to 3.9% against expectations of 4.1%, and wages rose by 0.6%. These statistics increased expectations that the Federal Reserve will begin raising interest rates at its March meeting.

The Euro strengthened against the US dollar despite showing barely any reaction to data showing Eurozone inflation rose to 5% in December. Several Eurozone policymakers have said they expect inflation to slow in 2022 gradually, and this year's rate hike may or may not be necessary.

After news broke last week that the UK will impose no more restrictions to combat Omicron, the Pound gained against many rivals, especially the US dollar. However, the week ahead is shaping up to be quite busy on the economic front. With Omicron peaking in London and the Federal Reserve's urge to tighten the monetary policy still rising, these two forces will likely remain in play for the major currency pair. Technically speaking, GBP/USD is currently trading at 61.8% of the retracement level of 1.35800 and below its resistance level of 78.6% of 1.36900. The upcoming week features the all-important US inflation and retail sales data and the UK's GDP data.

Commodities

Last week, gold prices pushed through volatile waters against the US dollar. On Thursday, 6 January 2022, the yellow metal entered a freefall to reach lows of around $1,790, translating to a 2% dip from the previous 24-hours. Gold entered Friday’s trading set for a 1.7% weekly loss, but prices mildly recovered in the week's final trading session. The metal ticked up around 0.4% by Friday, 7 January 2022, mid-day, trading close to $1,797 per ounce. 

An overall shaky week for the bullion came amid signals from the Federal Reserve to hike interest rates faster than expected and disappointing US jobs growth data. With the US moving closer to full employment, gold's reaction highlights its particular sensitivity to inflationary risks and interest rate advances. 

Additionally, spot silver and platinum also edged up last week. Silver advanced by 1.1% at around $22.40 per ounce, whilst palladium climbed by over 3% to $1,933 per ounce. Meanwhile, platinum fell by 0.6% to trade around $959 per ounce.

In a bullish week for the oil markets, Brent crude jumped to $80 per barrel last Tuesday, 4 January 2022, its highest level since November 2021. Prices advanced as OPEC+ maintained its plan to increase its output by 400,000 barrels per day in February 2022, indicating optimism for future global demand.

Cryptocurrencies

It was a heavy week for the crypto markets, as Bitcoin's value plummeted to a 3-month low over worries about tightening monetary policy in the United States and an internet outage in Kazakhstan, the world's second-largest mining hub.

As of late afternoon on Friday, 7 January 2022, Bitcoin's price was trading near the low of $41,360 after falling below the $42,000 mark. Bitcoin began its bearish run early last week upon hints from the Federal Reserve that policymakers were ready to aggressively dial back the stimulus aid that kept the economy afloat during the pandemic's peak. 

A hawkish attitude by monetary policymakers led to a global sell-off in equity markets, which spread over to cryptocurrencies. Even though supporters often describe Bitcoin as uncorrelated with traditional financial markets, experts have noted growing patterns between the price movements of bitcoin and stocks. The world's largest cryptocurrency could test the waters around the $38,600 level, where its first support level lies at the 23.6% retracement level. If Bitcoin bulls rally, upside resistance is visible around $44,400 at the 38.2% retracement level.

Altcoins also followed the price drop of the market leader, with Ethereum and Solana continuing to slide. This decline resulted in both coins shedding between 6-8% during Friday's sell-off.

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