Tech leading the way

It’s been a mixed day of trade in Europe and the US is poised to open marginally lower as traders take a step back following a lively start to the year.

The Fed minutes may have put a slight dampener on things although I’m not entirely sure. The narrative from the central bank is very much in line with what we should expect. Policymakers are desperately trying to convince markets how serious they are about defeating inflation, to the point that investors are seemingly paying less attention.

I can understand the Fed’s caution given the erratic nature of the data and its own credibility issue having turned up casually late to the party. The risk now is that it overcompensates during the exit from tightening and pushes the economy into a deeper downturn than necessary. This is why we may well see it maintain the hawkish position in the near term but ultimately not follow through and instead quickly pivot, perhaps later in the quarter.

That will all depend on the data and the jobs report last month was not what the central bank wanted to see. It will be hoping for something more modest on Friday, with a particular focus falling on wages which surprised substantially to the upside in November. The ADP report wasn’t a promising precursor but then, it’s rarely a reliable one either.

Amazon and Salesforce continue tech layoffs

Tech firms have often been the outlier in markets in recent years and now they are for all the wrong reasons. While most companies have been reluctant to lay off staff, having been burned in the aftermath of the pandemic by a surprisingly tight labour market, tech firms have been quick to pull the trigger and in emphatic fashion.

There is no crystal ball that the firms’ bosses have access to that others have not; rather it’s a reflection of the intense hiring spree they went on in recent years as business boomed and stock prices soared. The economic cycle has turned rapidly, leaving those companies over-staffed and while that would ideally not result in mass lay-offs, it was always likely to. While other sectors may also gradually start laying off staff in response to the economic downturn, I don’t expect it will be on the same scale, not unless the outlook worsens considerably.

Pre-data nerves?

Bitcoin isn’t offering much in terms of excitement today, down marginally and with a relatively tight trading range. Whether that’s a little pre-jobs report apprehension or something more defensive amid a welcome quiet period for crypto isn’t clear but we’ll find out soon enough.

For a look at all of today’s economic events, check out our economic calendar: www.marketpulse.com/economic-events/