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Daily Wrap Up 5 January 2022

5 Jan 2022 04:31 PM

Tech weighs on Wall Street, Europe outperforms    

The sell-off in the technology sector is holding back the US market. The relatively elevated US 10-year yield has dented the tech sector in the past 24 hours. Broadly speaking, technology companies have a larger portion of debt, and should interest rates rise in the next few months, those companies are more likely to feel pain than firms that have fewer liabilities. The 10-year yield is flat today, but yesterday hit reached a six-week high. The NASDAQ 100 is down 0.6% today, while the S&P 500 is basically unchanged on the session. By contrast, European markets like the FTSE 100 and the DAX are up 0.2% and 0.6% respectively.

There seems to be some disconnect between the US dollar and the 10-year yield. The greenback is down over 0.4%, while the 10-year yield is flat. It is surprising the dollar is down so much when you consider the impressive ADP report, which showed that 807,000 jobs were added last month – the highest reading since May – it hammered the 405,000 consensus estimate too. On Friday, the latest US non-farm payrolls report will be announced, and today’s ADP update has set the scene. Later, the Federal Reserve will publish the minutes from last month’s meeting where it announced it will double the rate of tapering, and it signalled three rate hikes for 2022. Traders will be interested in the finer details of the announcement, especially with regards to how much the high level of inflation played in the decision to ramp up tapering. Yesterday, the ISM manufacturing PMI report showed there was a significant fall in prices paid, and should that trend continue, it might take some of the pressure off the Fed to rate hikes in the first half of this year.

Gold and silver and benefitting from the drop in the US dollar as the inverse relationship between the metals and the greenback continues to be strong. Gold has been trending higher since mid-December, and if it breaks above the $1,831 mark, it could target $1,843. WTI hit its highest mark in six weeks as the latest US inventory data showed that oil and gasoline stockpiles fell by 2.14 million barrels and 1.6 million barrels respectively – which speaks to healthy demand levels.

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