U.S. Markets Weekly Wrap-up

February starts with a spotlight on jobs; Nasdaq’s midweek tumble; Euro up on the back of Lagarde’s hawkish turn

As the first week of the new month draws near a close, we look back on its twists and turns and take a look on the three main headlines that shaped the week, and that should continue to do so next week and beyond. We analyze the impact of Omicron on both jobless claims and private-sector jobs, passing through NASDAQ’s tech-fueled slump and the remarks by ECB’s Lagarde that put the final nail in the coffin on the U.S. Markets bumpy week.

Lower jobless claims are raising eyebrows, with Omicron wave receding. Private sector also takes a hit.

US jobless claims have fallen for a second straight week, partially undoing a recent surge in claims, as Omicron cases subside and the U.S. labor market begins to rebound.

Data from the Labor Department showed on Thursday that initial jobless claims fell by 23,000 to 238,000 in the week ending on January 29. Regular state claims dropped to 1.63 million in the week ending January 22. 

Claims continued to decline after a spike in recent weeks amid the surge in Covid-19 cases across the country. Claims have largely dropped in the past year, and layoffs are at a record low as companies are desperate to retain and attract talent amid a labor shortage.

On an unadjusted basis, claims edged down to 257,002 last week. Ohio, Kentucky and Illinois were the states that recorded the biggest reductions in unadjusted claims. Pennsylvania, Michigan and Indiana recorded the biggest increases in claims.

Over on the private-sector, omicron’s rapid assault stung, and it stung hard, with the ADP reporting the loss of 301,000 private-sector positions in January alone. 

The decline, caused by the surge in Covid-19 infections, led to business closing and some activities being heavily restricted, adding to the pressure in the labor market. A near-record number of unfilled vacancies and increased employee turnover are contributing to capacity constraints. Still, the expectation for the increase in the number of jobs will rise as the wave subsides and of the omicron variant  loosens its grip in the U.S. economy,

Spotify and Meta on the steering wheel for Nasdaq’s midweek plunge; 

It seemed like an ordinary Wednesday, global equities rallied and it all seemed to go according to plan, then Hell broke loose with Meta Platforms Inc’s quarterly earnings missed estimates, and the bad news started a domino effect that brought all their fellow social media stocks tumbling down as well, basically sinking a preliminary recovery built on reassuring earnings from other players in tech.

U.S. stock index futures fell sharply, with contracts on the high-tech benchmark Nasdaq 100 (SDX) falling about 2.2% after shares in Meta Platforms Inc (FB), and music and podcast streaming giant Spotify Technology SA (SPOT) collapsed in the US aftermarket amid weak guidance and their own internal crisis involving controversial podcasting mogul Joe Rogan, with artists pulling their work from the platform in response to the former’s stance on Covid.

What no one saw was that U.S. stocks actually closed up on Wednesday, pushing global equities to their biggest four-day advance since 2020, but these results were completely overshadowed by the slump in tech. 

Weak earnings  from US tech giants have been poorly received and pose a new challenge for investors looking for opportunities to alleviate concerns regarding interest rate hikes by the European Central Bank. Markets have fluctuated sharply and equities are taking losses this year as central bank officials cut back on stimulus to keep inflation under control.

Euro shoots up on back of Lagarde’s hawkish remarks

Markets woke up this Thursday with the most bitter of hangovers, following a rough Wednesday, with investors trying to digest disappointing results from Facebook parent Meta Platforms Inc. (FB) and concerns over persistently high inflation from the European Central Bank.

The euro rose along with global bond yields after ECB President Christine Lagarde made comments perceived as hawkish, prompting investors to anticipate bets on ECB rate hikes. They now expect the tightening this year to be around 40 basis points, down from 25 basis points before the last monetary policy decision. The highlight of Lagarde’s remarks was probably when she addressed the differences between the EU and US scenarios:

“I think we should be a little bit cautious about what I am hearing a lot, which is constant comparisons between the U.S. and the euro-area, the Fed and the ECB.

“We are really operating in different environments with different economic data. Just to give you an example, our demand here in the euro-area is pretty much back to where it was pre-COVID, in the U.S. it is 30% up. Ask yourself why? Because of this massive fiscal stimulus that the U.S. economy has had, unlike the euro area, where it has been more moderate, not excessive and which is producing the measured pace at which some factors are significantly improving.”

US Treasury bonds were down and the greenback followed suit, retreating against other global currencies. Meanwhile, the S&P 500 (SPX) and Nasdaq 100 (NDX) have halted their best streak of gains since 2020, when Meta lost more than $200 billion of its market cap.

What next week can expect from this one:

Weak numbers from US tech giants including Spotify Technology SA (SPOT) have rattled investors who had bet a strong earnings season would keep stocks attractive and combat some of their concerns, including tighter monetary policy from central banks. 

Still to happen this Friday:

• US Payroll Report for January;
• The Winter Olympics starts in China. Russian President Vladimir Putin is expected to attend the opening ceremony;