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Stock Futures Trade Flat Ahead of BOE and ECB Decision


4 February 2022 Written by Naeem Aslam  AvaTrade Chief Market Analyst Naeem Aslam

US and European futures are trading mostly flat. Investors are hesitant to place any bigger bets ahead of two important events: the ECB monetary policy decision and the Bank of England monetary policy verdict. It also seems like the bull rally that we experienced during the past few days may be running out of steam as some of the tech giants such as Meta have failed to impress Wall Street. In addition to this, the further escalation in geopolitics is a matter of concern. Traders must pay attention to those new developments as they have serious potential to throw markets off balance.

Finally, the lacklustre US ADP number yesterday has set a tone for a more disappointing number that doesn’t sit well with market players, as we are in an environment where the Fed wants to increase the interest rate and begin reducing its balance sheet size.

Earnings

The stock which is going to highly volatile today will be Meta. Facebook, which was recently rebranded Meta, fell short of expectations in terms of daily and monthly active users, as well as estimates for the coming quarter. According to Facebook, revenue in the first quarter will range between $27 billion and $29 billion. Analysts expected sales of $30.15 billion.

Facebook claimed it is being impacted by a number of issues, including inflation, changes to Apple’s iOS privacy settings, potential supply chain delays at the advertiser level, and other macroeconomic problems. Facebook said that lower than expected earnings due to soaring inflation conditions and concerns about supply chain have adversely influenced advertisers’ spending.

The name transition to Meta brings with it a new reporting structure. In its most recent financial report, the firm stated that it will divide its hardware branch, Facebook Reality Labs, into a distinct entity. Its primary focus will be Facebook’s Family of Apps (FoA), which includes Instagram, Messenger, and WhatsApp.

The Two Big Events For Today

The European Central Bank and the Bank of England make monetary policy statements on Thursday, which will heat up the action for currency traders in the next 24 hours. We anticipate larger swings for the euro and sterling, as a result of the ECB and the BoE statements

BOE

The Bank of England, on the one hand, is likely to hike interest rates for the second time in a row at its next meeting. This would be the central bank’s first consecutive rate rise since 2004. They began their tightening cycle in December, raising interest rates from 0.1 percent to 0.25 percent. This action surprised many people because the Omicron was spreading rapidly across Europe at the time, prompting fears of further lockdowns. However, inflation was clearly a significant enough concern that the BOE was willing to disregard short-term economic threats.

After a month, the case for additional tightening is compelling. Omicron did not produce the economic chaos that everyone expected; UK data has remained stable, although pricing pressures have risen. A quarter-point hike is required at a least, with a slight but plausible probability of a half-point hike.

 The Bank of England has been one of the most hawkish central banks, and with the market expecting four rate rises from the Fed, the Brits may go even further.

ECB

Investors have also been purchasing euros in anticipation of the European Central Bank’s rate announcement. The ECB is not anticipated to make any adjustments, but the recent increase in inflation has many traders pricing in a rate hike before the end of the year.

Inflation rose to a new record high of 5.3 percent in January, up from 5 percent in December, according to the most current CPI report issued yesterday. Economists predicted a downturn, but the cost of living has risen. Although ECB President Lagarde stated last week that the central bank has no motive to move as quickly as the Fed, pressure on the central bank to decrease support is increasing.

Even a smidgeon of hawkishness might be enough to propel the EUR/USD to 1.14. But if she refuses to cave in and throw the towel by downplaying the need for a hawkish move, the EUR/USD will plunge. Traders should also keep a close eye on the EUR/GBP pair which is primed for a big move today 

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