Investors Turn to NFP While NASDAQ Dips after a 3-Day Hike

It’s NFP Friday, but investors are talking about the past 2 days just as much as this afternoon’s US Employment figures. All three of the world’s central banks have increased their interest rates as expected by the market. The Federal Reserve hiked 25 basis points which are understandable considering inflation has significantly declined and their Federal Fund Rate is already higher than competitors. The European Central Bank and the Bank of England all chose to increase their main rate by 50 basis points as both regions still battle high inflation. 

Currency Reaction - GBP, Euro, and US Dollar

When looking at the currency market over the past 48 hours we can see mixed price movement. At first, the US Dollar significantly declined to push the price to new lows, specifically against the Euro. However, most exchange rates reflect the previous price range, where investors are pricing the Dollar. This week the currency which struggled more than others is the GBP. 

The GBP has declined against all its main competitors including the US Dollar, Euro, and Japanese Yen. As repeatedly mentioned in our daily market analysis, the UK is at the highest risk of a recession while still experiencing very high inflation and a big public backlash. However, investors should note that the Bank of England Governor advises the UK will most likely only experience a small recession. 

Most economists added that investors and citizens are cautious about believing the possibility. In a recent report from earlier this week, the International Monetary Fund determined from their analysis that the UK will be the only member of the G7 group which will shrink in 2023. According to the report, the UK economy will decline by 0.6% followed by a minimal recovery in 2024, measuring 0.9%.

The GBP/USD has declined by 1.19% since yesterday’s Bank of England announcement and continues declining during this morning’s London trading session. Investors are also closely monitoring the EUR/GBP which reached an 18-week high. The EUR/GBP is now trading at the price range traders were witnessing during the Pound crisis in September 2022.

GBP/USD 3-Hour Chart on February 3rd

Today’s Non-Farm Payroll Report

If we remove the Japanese Yen from the picture, the US Dollar saw the strongest price movement over the past 24 hours and has formed a full correction against most competitors. Economists expect the Federal Reserve is to hike another 0.25% before halting its monetary policy alterations. However, throughout the day investors will largely focus on today’s employment figures, specifically NFP. Investors will monitor whether the economy remains resilient and indicate a soft landing rather than a recession.

EUR/USD 3-Hour Chart on February 3rd

The unemployment rate is expected to increase from 3.5% to 3.6%, which is still considerably low. The NFP figure, which confirms the amount of more employed individuals within the economy over the past month, is expected to read 193,000. A higher NFP figure can support the US Dollar and/or US Stocks. 

Lastly, the market will also be anticipating the ISM Services PMI, which can also significantly impact the Dollar. The ISM Services PMI is expected to increase from 49.6 to 50.5. If the index is above 50.5, again it may support US assets. 

NASDAQ and Tech Companies’ Earnings

This morning the NASDAQ is experiencing its first decline after 3 days of consecutive increases. Though investors should note that the price still remains above yesterday’s open price. This morning the price declined by 1.17% but yesterday the price significantly increased before declining at a previous resistance level. Yesterday the price increased by almost 3.50% before collapsing toward the end of the trading session.

NASDAQ 30-Minute Chart on February 3rd

The market’s risk appetite has taken a slight hit after last night’s earning reports from large tech companies, however, it should be noted that investor sentiment continues to remain high. 

Apple earnings were one of the reasons behind this morning’s decline. The company’s Revenue and Earnings Per Share were unachieved compared to Wall Street’s expectations. Apple’s Earnings Per Share read $1.88 which is 3.6% lower than expected, but still higher than the previous quarter. 

Lastly, Alphabet’s Earning Per share is also an even bigger concern for investors. The company confirmed their Earning Per Share was more than 12% lower than expectations and slightly lower than the previous quarter. The stock that saw the biggest decline was Amazon (declining 5.07%). Amazon’s Earning Per Share was only $0.03, which is a whopping 75% lower than most expectations.

 Summary:

• The Pound continues to decline as the market refuses to forget the risks of a recession. The GBP declines against all main competitors including the Dollar, Euro and Yen. 
• The Japanese Yen and US Dollar have seen the most bullish price movement over the past 24 hours. 
• The US NFP figure is expected to read 193,000 and the Unemployment Rate to rise slightly to 3.6%.
• NASDAQ declines for the first time after 3-days of declines. The market’s risk appetite slightly declines due to weak earnings from three major technology market