Early Morning Call: EUR/USD at nine-month high, amid expected 25bp Fed rate increase
Thee market has reportedly priced out almost any chance of a 50-basis points hike by the Fed at its next meeting in early February.
Equity market overview
Equity markets in Europe have started the week on the front foot, after a positive session in the APAC region.
On Friday, the Nasdaq 100 ended the session 2.9% higher, its biggest gain since November 30, after US Federal Reserve (Fed) governor, Christopher Waller, said he favoured a 25-basis point (bp) rate increase at the next Fed meeting.
The euro now trades at a nine-month high against the dollar. Yesterday, European Central Bank (ECB) governing council member, Klaas Knot, said in an interview that the market should expect a 50-basis point hike at the next ECB meeting, adding that more steps would follow in May and June.
Last Monday Bank of France governor, Francois Villeroy de Galhau, said that Christine Lagarde's 50 bp guidance was still valid. These hawkish comments contrast with market pricing for a less aggressive Federal Reserve, which explains the recent euro rally against the dollar.
According to Refinitiv, the market has priced out almost any chance of a 50 basis points hike by the Fed at its next meeting in early February. And after peaking by mid-2023, investors are betting on a 50-basis point cut for the second half of the year, reflecting softer data on inflation, consumer spending and housing.
The Bank of Canada (BoC) is the next central bank to decide on its rates. The market expects the BoC to hike by another 25 basis points on Wednesday, to 4.5%. According to Bloomberg News citing sources, Spotify Technology is planning layoffs as soon as this week to cut costs. The number of jobs being eliminated was not specified.
Last week, Reuters revealed that Alphabet could be the latest tech firm to cut jobs. In a memo seen by the press agency on Friday, the Google parent company plans to eliminate about 12,000, about 6% of its workforce.
On January 18, Microsoft said it would cut about 10,000 jobs, or around 5% of its staff.
On January 5, Amazon.com announced 18,000 job cuts. Last November, Meta Platforms said it would eliminate 11,000 jobs.
Technology firms based in the United States announced 97,000 job cuts in 2022 according to consulting firm Challenger, Gray & Christmas, which is the most since 2002. Still, according to provisional figures from the US Bureau of Labor Statistics, the tech sector employed 4.4 million people in December 2022, nearly half a million more than in February 2020, the month before Covid-19 hit America.
US earnings season
The tech sector will remain in the limelight this week as US earnings season continues, on Tuesday, with Microsoft, Johnson & Johnson, Verizon, General Electric, followed on Wednesday by Tesla, Boeing, IBM and AT&T.
American Airlines and Visa will report on Thursday, and Chevron and American Express on Friday.
On the commodity market, oil prices are little changed this morning.
Last Friday, Baker Hughes total rig count fell by four to 771. The number of oil rigs in operation decreased by 10 to 613.
And the copper rally continues, now back above $9,400.
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