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Today's Markets: Stocks firmer, oil nearing top?

European tech stocks lead the way, and US big tech on a more positive footing
Today's Markets: Stocks firmer, oil nearing top?
  • Alphabet release bumper earnings report
  • Ocado leads FTSE 100 with 7 per cent gain
  • MicroStrategy double down with Bitcoin purchase

European tech stocks led the main bourses higher after a bumper earnings report from Alphabet (GOOGL) and generally more positive risk sentiment as Wall Street rose on Tuesday for a third straight session. The FTSE 100 climbed about half of one percent in early trade, approach the intra-day highs from last week. The DAX printed above 15,700 in early trade before paring some of those gains. Ocado (OCDO) led the FTSE with a gain of 7 per cent on an upgrade from Credit Suisse (0I4P). Vodafone (VOD) rose after its Q3 update was largely in line and Nick Read said the company was "committed to creating value for our shareholders through proactive portfolio actions".

On Tuesday, the S&P 500, Dow Jones industrial average and Nasdaq all rose about 0.7 percent. Energy was a leader as Exxon (XOM) beat on the top and bottom line thanks to surging oil prices, whilst free cash flow from operations was $48bn for the quarter – the best since 2012.

Near-term oil top? Everyone talking about $100-a-barrel crude reminds me of several previous situations that don’t look too dissimilar. Technicals point to being near-term overbought even if the backwardation points to a very tight market. Looking at a potential MACD bearish crossover in the offing and possible retest of the $82 area first, and possibly $75, even if the longer term trend remains upwards. Looks to me like similar to July and October 2021 tops. Russia? This makes it ‘different this time’ for sure. Hard to call but there is only so much geopolitical premium available at any one time. Variants not like previous tops as well – Covid won’t drag like it did last year. Focus today on both the OPEC meeting - not expecting any surprises but then it wouldn’t be a surprise if you were expecting it - and US crude oil inventories. API reported a surprise draw of 1.65m barrels, vs expectations of a build of 1.8m barrels, indicating a tighter market and could be a marker for the EIA figures.

YOLO: More doubling in, averaging in but in the wrong direction. Diamond eyes MicroStrategy (MSTR) CEO Michael Saylor bought the dip in Bitcoin. Yesterday he tweeted: “MicroStrategy has purchased an additional 660 bitcoins for ~$25.0 million in cash at an average price of ~$37,865 per #bitcoin. As of 1/31/22 we #hodl ~125,051 bitcoins acquired for ~$3.78 billion at an average price of ~$30,200 per bitcoin.” 

Scroll back about 9 months and Saylor was saying MSTR owned 92,079 bitcoins acquired at an average price of about $24,450 per bitcoin. So that is averaging up, which is fine, but does mean you’re incrementally edging closer to being underwater with prices are where they are. Obviously Saylor does not think that prices will fall or if they do, will ultimately bounce. But what if they don’t? What if the bubble is pricked? MSTR is down 33 per cent YTD, Bitcoin is sideways around the $38k level this morning.

Back to the more mundane macro picture. EZ inflation due today... UK shop price inflation jumped from 0.8 per cent in December to 1.5 per cent in January. Later today we have the US ADP jobs number – (NFP on Friday) as well as earnings from Facebook/Meta (FB), Qualcomm (QCOM) and Spotify (0SPT)

In FX, the dollar remains on the back foot still after the Friday peak. GBPUSD trades comfortably above its 100-day moving average at 1.3530. The euro is also firmer against the greenback with EURUSD at 1.1280 area, looking to recover the 61.8 per cent retracement of the move from the March 2020 low to January 2021 high. Both pairs trying to regain the bullish momentum but it hasn’t fully flipped against the dollar just yet.

Finally, the Fed’s Harker on the wires yesterday: balance sheet reduction will be swifter and steeper than last time they did it... four 25bps hikes this year likely appropriate but could go harder if inflation spikes. Could do 50bps in March... another mentioning this, flying the test flag for a potentially more hawkish start to this hiking cycle. Harker also said he expects a weak jobs report on Friday because of Omicron... indicative of the economy at full employment. 

Neil Wilson is the Chief Market Analyst at markets.com