Will investors buy this latest dip, as they have done so every single time in recent past?
Source: ThinkMarkets and TradingView.com
There
hasn’t been any relief for technology stocks or cryptocurrencies at the start of the new week.
Nasdaq futures fell about 1.2% before the open on Wall Street, then sold off even more to 2.5% on the session at last check.
Bitcoin dipped below the
$40K handle after failing to break resistance at $42.5K over the weekend, although it was coming off its lows at the time of writing. The
US dollar has also found support, after weakening somewhat on the back of Friday’s jobs report which disappointed on the headline front but showed another sharp rise in wages.
Investors are wondering
what 2022 means for assets inflated with government and central bank liquidity during the pandemic, with technology and cryptocurrencies being the obvious focal points. So far, they have shown a
clear desire to move into value and away from low-div-yielding stocks, as bond yields climb across the board as we get closer to the time of lift off. Investors are pricing in a Fed hike in as early as March.
Gold’s struggles are a side effect of investors’ desire for higher yielding assets and the US dollar. The precious metal has been unable to find much haven flow despite the crypto and tech sell-off.
Inflation and FedSpeak eyed
This week, we will find out exactly how high or otherwise price pressures are in the US and what some of the Federal Reserve’s policymakers might be thinking in terms of response. The latest consumer price index, due on Wednesday, will be watched closely and we might see a bigger response in the markets than we did in reaction to Friday’s jobs data. In additional, several FOMC voters speak this week, including Fed Chair Jerome Powell on Tuesday. We will also hear from these hawks: Cleveland Fed President Mester, Kansas City Fed President George and St Louis Fed President Bullard (hawk).
Value stocks likely to find support first
Although even some value stocks sold off along with the tech sector, the former has shown relative strength during the past month or so as Omicron concerns have been replaced by tightening fears. Investors are realising that the era of zero interest rate policy is coming to an end, because of inflation and the fact the US and global economies have weathered the storm of Covid. There’s hope that this omicron wave might be the last hurrah of Covid before the pandemic turns into endemic. So, if any sector is likely to outperform, it is value stocks like banks and those that pay higher dividends.
Investors are now looking ahead as they try to anticipate how the Fed and other central banks might respond if the economy evolves as expected. Here’s what is on tap for the rest of the week:
Macroeconomic highlights
Tuesday: Fed Chair Powell testifies and speeches by Fed’s Mester and George
Wednesday: Eurozone industrial production and US CPI m/m
Thursday: US PPI and Unemployment Claims
Friday