(Boursier.com) – The first week of 2022 ended in gloomy weather on Friday, with tech stocks still weighing on the trend in fears of a Fed rate hike this year. The markets also did not appreciate the announcement of much lower than expected job creation in December in the United States, accompanied by a sharp rise in hourly wages. In the euro zone too, inflationary signs are on the increase, with prices estimated at 5% in December over one year.
At the close, the Dow jones ended close to equilibrium (-0.01%) at 36,231 points, while the broad index S&P 500 fell 0.41% to 4.677 pts, and that the Nasdaq Composite, rich in technological and biotech stocks, dropped 0.96% to 14.935 pts.
On all of this first week of 2022, the Dow Jones fell 0.3%, the S&P 500 fell 1.9% and the Nasdaq fell 4.5%. The Nasdaq has now corrected 7% from its last record on November 19. Highly valued technology stocks are the most vulnerable to a rise in interest rates, which has a direct effect on the discounting of future cash flows of rapidly growing companies.
Only four of the eleven sector indices of the S&P 500 rose on Friday: energy (+ 1.4%), financials (+ 1.1%), “utilities” (+ 0.75%) and commodities (+ 0.16%). At the back of the pack, technology lost 1%, consumer discretionary fell 1.6% and health care fell 0.4%.
In Europe, the markets ended in slight decline on Friday after the publication of US employment figures and inflation in the euro zone. The index EuroStoxx 50 sold 0.4%, and in Paris, the CAC 40 also returned 0.4%, but shows an increase of almost 1% in this first week of 2022. According to preliminary data from the Eurostat institute, the rate annual inflation in the euro area is estimated at 5% in December over one year, against 4.8% expected by the markets. A record level after the already historic one in November (+ 4.9%).
Labor shortage and rising wages
Investors were surprised by Friday’s announcement of only 199,000 non-farm job creations in December in the United States, where the FactSet consensus was forecasting around 400,000 job creations and Bloomberg’s expecting 447,000 new jobs. The posts created in November were however revised up to 249,000.
December’s poor performance reflects the difficulty for employers to recruit in an environment disrupted by the new wave of the coronavirus pandemic. The labor shortage also led to an increase in the average hourly wage of 0.6% over one month and 4.7% over one year, increases much larger than expected. In addition, for November, the increase in the average hourly wage was revised upwards (+ 0.4% over one month and + 5.1% over one year).
The unemployment rate, however, fell to 3.9% in December, against 4.1% consensus and 4.2% in November. It is now at its lowest for 22 months. The labor force participation rate stood at 61.9%, stable and in line with market expectations.
WTI oil climbs 5% over the week
In addition, the figures for US consumer credit, published Friday evening, jumped more than expected in November, up $ 40 billion (+ 11%), against + $ 20 billion expected by the consensus FactSet.
Oil prices took profit after the US jobs figures, but the price of US crude WTI jumped 5% over the week, supported in particular by social unrest in Kazakhstan, a major producer country of OPEC +. The barrel of American light crude WTI on Friday sold 0.7% to $ 78.90 (February Nymex futures contract), while the Brent de Mer du Nord was down 0.3% to $ 81.75 (March contract).
The Fed is preparing to tighten its monetary policy
As the fourth quarter corporate earnings season kicks off next weekend, with big bank accounts, markets remain concerned about the Federal Reserve’s declining tone. The “Minutes” of its last December 14-15 meeting, released on Wednesday, showed that not only will the Fed cease its asset purchases as early as March, but that it is expected to raise rates at least three times this year, may -be from March.
Finally, the Fed is considering reduce its balance sheet “shortly after” starting to hike rates, which would constitute a further degree of tightening monetary. The markets were caught off guard by this eventuality: during the last bull cycle of 2015, the Fed waited two years before reducing its balance sheet (which consists of stopping buying back bonds to replace maturing ones). The Fed’s balance sheet, already ballasted by 4.4 trillion dollars before the pandemic soared to 8.670 billion dollars at the end of 2021.
The American “10 years” at the highest since the end of 2019
Friday, the yield of T-Bond at 10 years tightened further to reach 1.77% (+5 basis points), the highest since December 2019, against 1.5% on December 31. In Europe, the rate of German Bund at 10 years climbed to -0.05% (+2 bps) at its highest since April 2019.
Friday, Mary Daly, patron of the San Francisco Fed, spoke out in favor of a gradual increase in key rates, and the start of a reduction in the balance sheet after “one or two rate hikes”. On the inflation front, she relativized by estimating that the United States was not “on the precipice of a spiral of rising wages and prices”.
Three rate hikes and balance sheet reduction in sight from 2022
Thusday, James Bullard, President of the St-Louis Fed, said he was considering three rounds of monetary screws this year, including the first at the March 15 and 16 meeting. He said he expected inflation to remain above 3% per year by the end of 2022. He estimated that the Fed’s credibility would be at greater risk now than in the past three decades.
Between now and March, the Fed will have the opportunity to state its intentions at its January 25-26 meeting. Until then, the central bank will be able to measure the impact of the Omicron variant wave on the economy, knowing that in the event of a significant slowdown in activity, it could hesitate to be too “hawkish” (bullish ).
According to data compiled by CME Group, reflecting forward contracts, the probability of seeing the Fed increase its key rates by a quarter point to 0.25-0.50% next March, has further increased to reach 69, 8% Friday against only 26% on December 3. There is a probability of nearly 80% that the “fed funds” rate will be raised at least three times by the end of 2022.
The race against Omicron is on, more than 800,000 deaths since the start of the pandemic in the USA
On the pandemic front, the Supreme Court of the United States is examining urgently this Friday the obligation to be vaccinated against Covid-19, which President Joe Biden is trying to impose. The Supreme Court will examine two obligations, one relating to private companies with more than 100 employees – or two-thirds of private US jobs – and the other to workers in health structures benefiting from federal subsidies. However, we will have to wait several weeks before knowing the verdict of the Supreme Court on the subject.
A measure that comes as the number of Covid-19 cases has more than tripled in the United States in two weeks with the outbreak of the Omicron variant. The country posted a world record of one million new cases of Covid last Monday …
Meanwhile, health authorities (CDC) have relaxed isolation and quarantine guidelines for schools. White House and Postal Services (USPS) are finalizing details of delivery of 500 million Covid-19 test kits across the country.
The United States currently has a vaccination rate of 62% (full schedule), with 515 million doses administered. The virus has killed more than 800,000 people there. Nearly 130,000 Americans are currently hospitalized or in an ICU (intensive care) due to the coronavirus.
VALUES TO FOLLOW
GameStop (+ 7.3%) rebounded. The specialist in the distribution of video games and electronic equipment, whose share price had experienced a phenomenal rise in January 2021 with the movement of ‘same stocks’, plans to launch a division to develop in the NFT market, the famous non-fungible tokens, and establish partnerships in cryptocurrencies. This is what the Wall Street Journal indicates, citing sources.
The WSJ clarifies that GME is launching this division with the aim of revitalizing its core video game business, and has reportedly hired more than 20 people to run the unit, which is an online marketplace for buying, selling and trading video game NFTs. virtual. GameStop is asking game developers and publishers to introduce NFTs to its marketplace, which it plans to launch later this year.
Apple (+ 0.1%) floated among technology stocks, but fell 3% on the week, despite a record set on Monday, which briefly raised its market capitalization to more than $ 3 trillion. After a year of record profits and sales in 2021, the apple-based firm paid CEO Tim Cook close to $ 100 million ($ 98.73 million), according to a document filed with the SEC on Friday. During Tim Cook’s 10 years of management, between August 2011 and the end of September 2021, Apple’s share price soared 1.174%. This is more than three times better than the performance of the S&P 500 over the same period. With a fortune of around $ 1.5 billion, Tim Cook however remains far from the top of the podium of global billionaires, occupied by Jeff Bezos (Amazon), Elon Musk (You’re here) and Bernard Arnault (LVMH).
Johnson & johnson (+ 1.3%), the US pharmaceutical and medical giant, announced new results from the largest study to date on the sustainability of COVID-19 vaccines in the United States, showing only a single dose of its vaccine had resulted in lasting protection for up to six months against Covid-19 infections, hospitalizations and intensive care unit admissions. The study was sponsored by the Janssen Pharmaceutical Companies (Johnson & Johnson) and conducted in partnership with the Department of Science-Aetion, Inc, and the Division of Pharmacoepidemiology, Department of Medicine at Brigham & Women’s Hospital and Harvard Medical School.
The new study published on medRxiv extensively examined the durability profiles of the three vaccines licensed or approved in the United States using the same methodology for three outcomes: Covid-19 infections, hospitalizations, and intensive care admissions.
The study showed that the effectiveness of the Johnson & Johnson vaccine against infections and hospitalizations remained sustainable. The mRNA vaccines (two doses) have shown decreasing efficacy for hospitalizations and infections, notes J&J. All three vaccines have shown no evidence of decreased protection against Covid-19-related ICU admissions at any time, showing long-lasting strong protection against extremely serious illness.
Pfizer still gained 1.6% today, while BioNTech returned 1.3% and that Moderna yielded 1%.
Walmart (+ 0.9%). Beijing accuses Walmart of violating Chinese cybersecurity laws, local media reports quoted by Reuters, while the American retail giant is also the target of criticism for having halted the sale of products made in China. Xinjiang.
New York Times (-10.7%) announced the acquisition of sports news site The Athletic for $ 550 million.