OANDA – Stocks Tumble After Meta’s Big Miss, US Data, Nat Gas Volatility, WTI Crude Tops $90, Gold Pares Losses, Bitcoin Lower
Q4 2021 hedge fund letters, conferences and more
The tech rebound is officially over after both Facebook owner’s disastrous earnings and a couple major central bank decisions paved the way for borrowing costs to continue to surge. The ECB's hawkish shift opens the door for tightening this summer. The BOE had a four dissenters that wanted to double today's rate increase. Technology stocks are going to struggle as confidence fades that the middle-of-pack companies will be able to navigate persistently high inflation, surging borrowing costs, and intensifying margin pressures.
US stocks seem poised to have a tug-of-war here over uncertainty with the economic backdrop and as the Fed reaction to surging pricing pressures will take a couple more months. Volatility will remain elevated until we get past the March FOMC decision.
Meta
The music stopped for Meta Platforms Inc (NASDAQ:FB). The social media giant is in trouble over rising competition, surging metaverse costs, and zero growth. The metaverse is years away and this outlook is abysmal as surging Reality Labs costs will kill their margins this year.
Facebook’s discouraging earnings sent large parts of technology stocks down, especially social media companies.
US Data
A wrath of US data did nothing to change the outlook for the labor market recovery and surging pricing pressure environment. Jobless claims trend remains intact and productivity continues to improve. The omicron variant impact. Efficiency has improved as companies have to adjust to surging prices and high labor costs.
The US service industry softened in January as the omicron wave continued to weigh on supply constraints and as businesses struggled with elevated costs and short labor supplies. The headline ISM services index fell from 62.3 to 59.9, slightly better than the consensus estimate of 59.5. The service sector slowdown will not last much longer, but it could persist into the second quarter. The labor shortage is a persistent problem that continues to fuel into surging costs which is now at unsustainable levels for some businesses.
Natural Gas
The UK power regulator approved a 54% increase for prices starting on April 1st. This follows the 12% price jump households saw in October. UK energy companies can now pass along the rise in natural gas prices to consumers, which will punish 15 million that rely on floating rate pricing.
It looks like in just over a year, energy costs will double by the end of year, which could make 10% of families go into energy poverty. The government is coming out with some subsidies, but that won’t be enough. US Natural gas prices will remain extremely volatile as cold weather disrupts many wells.
Oil
Crude prices initially were led lower as a tech rout and surging yields sank every risky asset. Energy traders remain committed to buying every oil price dip and that will probably remain the case until OPEC+ production catches up to demand.
WTI crude surged over the $90 level after an artic blast made its way to Texas and disrupted some oil production in the Permian Basin. The oil market is too tight and vulnerable to any shock. Even as thousands of flights are cancelled, the energy market is fixated over production and not so much short-term demand shocks.
It seems like $100 oil is not too far in the distant future and that will continue to be followed by growing pressure from worldwide leaders for OPEC+ to deliver more output.
Gold
Gold plunged after Treasury yields surged following after the ECB turned hawkish and the BOE showed they are ready to deliver more rate hikes. It is not just about worrying about the Fed raising rates too aggressively, but now the ECB is changing their tune about fighting inflation. Global inflationary pressures should lead to some flows into bullion and not necessarily mean the recovery is over. Gold will likely continue to hover around $1800, but if next week’s inflation report comes in hotter-than-expected, with an annual reading above 7.3%, selling pressure could take gold below the January lows.
Bitcoin
Bitcoin continues to consolidate below the $40,000 level. Today’s risk aversion mood has Bitcoin lower as global bond yields surge over fears of persistently high inflation. Bitcoin is forming a base and considering the selloff in tech stocks, crypto investors should be feeling a bit more optimistic that the bottom is in place.
Article by Edward Moya, OANDA
