US stocks are trading modestly lower Thursday against a backdrop of lackluster earnings and as investors continue to mark their positions to the seemingly forever blaring recessionary impulse.
Markets have been negatively correlated to more jobs in the economy than expected, as it increases the risks of an extension of the hiking cycle. Last week’s strong payroll report is still top of mind.
Even though first-time applications for unemployment benefits rose last week to 196,000, a slightly higher total than the 190,000 that economists were expecting, it is still at historically low levels. So even slightly sour news is now failing to get a rise from market participants suggesting last week’s NFP is still overloading the circuits.
The various negative anecdotes that have buffeted sentiment around the labor market for the past few months are still overwhelmed by the relentless need for workers in this post-pandemic economy.
Of course, this will keep the hawks in control of the proceedings, narrowing the path to a soft landing as the Fed is left with the difficult task of slowing the economy without tipping it into a severe recession.
Investors are very attuned to the fact that it will be “mission impossible” for the FED to have its cake and eat it in most scenarios.
And whether or not the Fed has tightened financial conditions sufficiently to bring inflation down to target over time is going to be the most significant debate in the market agenda through H1, where the fear is now that we could still be talking rate hikes in Q3.
So, with a US recession back in the purview, the move lower in rates today, the market’s primary mechanical counterbalance, cannot keep the broader tape from slipping as folks alight the rally wagon quickly.
‘Nothing ever good happens in bonds down rates down environment.’
On the macro front in the US, Friday brings the U. Michigan consumer sentiment survey.
In micro, look for earnings from Expedia Inc (NASDAQ:), LYFT Inc (NASDAQ:), Mohawk Industries Inc (NYSE:), Yelp Inc (NYSE:), PayPal Holdings Inc (NASDAQ:), and Brighthouse Financial Inc (NASDAQ:) after the close.
Next week’s CPI will ultimately set the market tone. But perish the thought of a top-side inflation miss where walls come tumbling down.
OIL MARKETS
Waiting on China
prices had difficulty navigating rising US and EU inventories without stating the obvious. The persistent inventory builds amid a higher-for-longer Fed mantra limits top-side ambitions.
Outside of the inventory whipsaw, markets await more concrete micro evidence of the growth recovery in China.
This year, the first leg higher in oil prices has been driven by expectations and positioning rather than broader fundamentals.
The recent rally has been caused by a shift in the Covid policy response and not an organic growth acceleration.
In the absence of the latter, investors may look more intently at the broader Chinese market, where big corners remain in quite a deep malaise.
But the enormous wall of worry hiding in plain sight is mounting fears of a systematic US economic decline that will catch onto the rest of the world, and China will not be exempt.
In a US recessionary scenario, there is nowhere to hide.
