Stocks yawn open, oil eases back, bonds on the move

Yawn and stretch and try to come alive…European stock markets are up a bit, the dollar is up a tad after a run of losses, oil is stabilising after rallying to multi-year highs last week; Bitcoin jumped over the weekend and now trades above $42k. Friday’s strong US jobs report off seems to underpinning a bit more confidence for risk, but German industrial production data is dragging on sentiment a bit, sliding -0.3% vs an expected gain of +0.4% . Basic resources and retail are the top performing sectors in Europe, real estate and oil & gas the weakest. Asian markets helped by a rally for Chinese stocks as they reopened following the Lunar New Year holiday despite some softer-than-expected services PMI figures. In London, the FTSE 100 rallied 0.4% in early trade to sit around 7,550. Housebuilders struggled as data showed house price growth slowed to its weakest in five months. A big week for blue chips reporting earnings – Unilever, BP, GSK and AstraZeneca among them. A lot apparently hanging on Unilever’s results amid shareholder discontent.

US markets enjoyed their best week of the year, but volatility remains. The S&P 500 and Vix index both rose Friday, hardly a sign of calm returning. Intraday index moves remain in excess of 1%. The forces of earnings, inflation and the Fed’s nascent hiking cycle continue to exert influence on market dynamics. You’ll no doubt have read that Meta (FB) lost $200bn in market cap whilst Amazon (AMZN) gained a similar amount. The S&P 500 closed the week up 1.5%, the Nasdaq climbed 2.4%. Shares in Peloton (PTON) rose 26% after-hours amid reports that Nike and Amazon are circling the embattled company.

US nonfarm payrolls surprised to the upside on Friday. Headline reading came in at +467k (expected +150k, previous +199k); Unemployment rate: 4.0% (exp. 3.9%, prev. 3.9%; Earnings +0.7% month-on-month (exp. 0.5%, prev. 0.6%) and +5.7% year-on-year (exp. 5.2%, prev. 4.7%). Wages were up big, jobs growth much better than expected; a reading that gives the Fed carte blanche to hike in March by 50bps should it choose to. Also, there were some massive revisions to prior months. Indeed, the market is now pricing in a roughly one in three chance that the Fed raises its funds rate by 50bps next month, swaps show market is pricing three 25bps hikes by end of June.

Curve flattening: The 2yr Treasury yield posted its biggest daily rise since March 2020, shooting above 1.3%; the yield on the 10yr bond is up above 1.9%, its highest since Dec 2019. The spread has narrowed to 60bps, not this narrow since 2020. UK gilt yields are also on the march – traders seeing a 50% chance the Bank of England raises rate in March to follow the Feb hike. Two-year gilt yields rose the most since Sep 2017 last week. And we should not forget the ECB’s hawkish turn…the German 2yr yield is up to its highest since September 2015.

Oil eased back a touch from the multi-year highs struck last week. WTI futures (Mar) remain above $91, Brent above $92. Looking for that so-far-elusive indication that a near-term top has formed. Aramco said to be mulling a fresh share sale…you know where the Saudis will want to keep prices.