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Main U.S. indexes decline: DJI down ~1%
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Energy weakest S&P 500 sector; staples just below flat
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Euro STOXX 600 index ends down ~0.03%
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Dollar, gold, crude, bitcoin decline
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U.S. 10-Year Treasury yield falls to ~3.47%
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THE HIKE WILL BE A NON-EVENT, IT'S THE MESSAGING THAT
MATTERS (1223 EST/1723 GMT)
The results of the latest FOMC meeting are due at 0200 pm EST. A 25 basis point Fed Funds increase is a near certainty, and according to Mike O'Rourke, chief market strategist at JonesTrading, the hike itself "should prove to be a non-event." That said, O'Rourke adds that the hike will result in a positive real Fed Funds rate - or effective Fed Funds rate minus the 12-month core inflation rate - for the first time since 2019. The key to post-FOMC statement trading, as O'Rourke sees it, should be the message Chairman Powell conveys about the path of policy for 2023. The New Year started with a chorus of Federal Reserve officials asserting the need to raise the Fed Funds rate above 5% and keep it there going into 2024. O'Rourke view is that Chairman Powell will "do his best to reinforce that 'higher for longer' message." Fed Funds futures expectations of the policy path are little changed since the December 14th FOMC meeting, indicating the policy rate will be 4.50% in December and 4.25% in January, which is "notably more dovish than the Fedspeak of 5.125%." O'Rourke suspects there will be a great deal of speculation about a Fed pause, which he sees as moot since the tightening cycle is nearly complete. However, he believes the FOMC still needs to grapple with the challenge of stubbornly easy financial conditions and needs to sound hawkish to do so. Therefore, O'Rourke thinks the market should focus on the FOMC sustaining a positive real Fed Funds rate, as it appears to him to be a good starting point for the FOMC to keep inflation on the path of deceleration.
(Terence Gabriel)
*****
THE EUROZONE BANK SHOW AIN'T OVER (1127 EST/1627 GMT)
Euro zone banks are on a roll with their index hitting fresh 11-month highs four times over the past 5 days.
Only Tuesday, a record profit at UniCredit provided the latest reminder of how the industry could benefit
further now that the region looks to have dodged a 2023
recession and the ECB cracks on with more rate hikes.
But the show isn't over.
Heavyweights Banco Santander , ING , Nordea and Deutsche Bank release their numbers on Thursday and investors will be watching closely for any fresh signs the sector has turned a corner after suffering from many years of central banks' ultra-loose policies.
Those four weigh a combined 34% on the Euro STOXX banks index and could also prove decisive in allowing it to climb to new highs, should the risk-on mood carry on.
The index needs another 3.6 percentage points to reach 2018
levels and at the current pace of gains it would need only three
or four days to do so.
(Danilo Masoni)
*****
WEDNESDAY DATA: SOMETHING FOR THE FED TO CHEW ON (1117
EST/1617 GMT)
Investors began what may well be a roller coaster day for
the stock market - a little thing called the Fed, heard of it? -
with a smattering of economic indicators, which offered a few
unwelcome surprises.
First, private employers added 106,000 workers in January,
according to payrolls processor ADP's National Employment index
(NEI) .
The number marks a 58.1% drop from the revised November
figure, and fell a mile short of the 178,000 consensus.
But lest we prematurely announce any easing in the tight
labor market - which has kept wage inflation hot - ADP says much
of the drop in private sector job adds could be blamed on the
weather.
"In January, we saw the impact of weather-related
disruptions on employment during our reference week,” writes
ADP's chief economist Nela Richardson. "Hiring was stronger
during other weeks of the month, in line with the strength we
saw late last year."
The Labor Department's more comprehensive January employment
report due Friday is expected to show a more robust 190,000
private sector job adds, which would still mark a monthly drop
of 13.6%.
Here's a look at the extent to which ADP is (or is not) an
accurate predictor of the Labor Department's private payrolls
number:
On the flipside, job openings in the U.S. unexpectedly
jumped by 5.5% to 11.01 million in December - not exactly a sign
of easing labor market conditions.
Economists projected a 2% drop in vacant positions.
The Labor Department's job openings and labor turnover
survey (JOLTS) , which measures churn in the jobs
market, also showed new hires and fires ticking higher, with the
quit rate holding steady.
Taken together, job openings outpaced new hires by 4.8
million, a 25% increase over November.
"The Fed isn't going to like this,” writes Andrew
Crapuchettes, CEO at RedBalloon. "11 million job openings is the
new normal in this tight labor market. The Fed and everyone
else will just have to get used to it."
Next, U.S. factory activity contracted at a
steeper-than-expected rate in the first month of 2023.
The Institute for Supply Management's (ISM) manufacturing
purchasing managers' index (PMI) shed one full point to land at
47.4, south of the even 48 predicted by the Street.
A PMI print below 50 signifies a monthly reduction in
activity.
New orders plunged and prices paid showed a much shallower
contraction than anticipated - yet another sign that inflation
is going to take its sweet time descending to the Fed's average
2% target.
On the bright side, the employment component returned to
expansion territory.
Noting that the headline number is at its "lowest level
since the coronavirus pandemic recovery began," Timothy Fiore,
chair of ISM's Manufacturing Survey Committee added that
participants are "reporting softening new order rates over the
previous nine months, the January composite index reading
reflects companies slowing outputs to better match demand in the
first half of 2023 and prepare for growth in the second half of
the year."
Not to be outdone, S&P Global also issued its final take on
January PMI , which landed at 46.9, just a hair
above its initial flash take released a few weeks ago.
"Excess capacity is developing, which has in turn meant
companies have scaled back their hiring and purchasing," says
Chris Williamson, chief business economist at S&P Global.
Additionally, Williamson says "a slight uptick in the
survey’s input cost and selling price gauges in January suggests
that the road to lower inflation could be bumpier than
previously anticipated."
Here's a look at how closely the dueling PMIs agree:
And finally, expenditures on U.S. construction projects
surprised analysts by dropping 0.4% in December, according to
the Commerce Department.
Both privately and publicly funded construction spending
fell by 0.4%, with a 0.3% drop in residential reflecting ongoing
softening in the beleaguered housing market.
Stocks opened red and have gained downward momentum as the
morning has progressed, with the blue-chip Dow suffering the
biggest percentage drop.
Economically sensitive chips and transports are providing rare glimpses of green.
(Stephen Culp)
*****
U.S. STOCKS MOSTLY RED AHEAD OF FED (1017 EST/1517 GMT)
The main U.S. stock indexes are lower early on Wednesday as
investors cautiously await the Federal Reserve's decision on
interest rates later in the day, while chipmaker Advanced Micro
Devices climbed on an upbeat outlook.
According to the CME FedWatch Tool, a 25 basis point hike at
the conclusion of FOMC meeting is a done deal, at 99.3%.
Stocks are under pressure, with the main indexes lower. The
DJI is off more than 0.5%, while the Nasdaq is
just below flat. Most S&P 500 sectors are red with materials taking the biggest hit. Healthcare and tech are slightly green.
Transports are showing strength, up more than 1%, and
the chip index , in the wake of AMD's report, is up more
than 2%.
The S&P 500 just enjoyed its biggest January rise since
2019, while the Nasdaq had its best January gain since
2001.
In a note, Howard Silverblatt, senior index analyst at S&P
DJ Indices, said "As for the January barometer of 'so goes
January, so goes the year,' it has been correct 71.28% of the
time since 1929 (and it worked in 2022: January was down, as was
the year), as this January has posted a 6.18% gain."
Silverblatt added, "The first day indicator is a coin-toss,
correct 50% of the time (did not work in 2022, as the first day
closed at a closing high, and it was the highest close of the
year), with the first day this year down 0.40% - so one of the
two are going to be wrong."
Here is a snapshot of where market stood around 45 minutes
into the trading day:
(Terence Gabriel, Sinéad Carew)
*****
S&P 500 INDEX: GOLDEN CROSS NEARS (0900 EST/1400 GMT)
The spread between the S&P 500 index's rising 50-day
moving average (DMA) and its descending 200-DMA ended Tuesday at
just over -8 points:
That's the tightest reading since March 14, 2022. At that
time, however, the 50-DMA had broken below the 200-DMA, and
these closely watched moving averages were diverging.
Given that they are now converging at just over 4 points per
session, there is potential for a golden cross to occur over the
next few days. Such a development can potentially suggest a
major advance is underway.
The last such cross occurred in the wake of the pandemic
crash on July 9, 2020. That golden cross occurred 75 trading
days after the March 23, 2020 SPX low. This time, Tuesday marked
the 74th trading day since the SPX's October 13, 2022 low, so
there will a close symmetry in time should the cross happen by
the week's end.
From the July 2020 cross, the SPX advanced more than 50%
into its early-January 2022 record high.
Meanwhile, the SPX, which closed at 4,076.50 on Tuesday,
faces resistance at four distinct September 2022-January 2023
highs that run from 4,094.21 to 4,119.28.
There is support around 4,015 (233-DMA/January 30th high)
then 3,975 (broken resistance line from January 2022 high). The
50- and 200-DMA's should be down around the 3,952-3,948 area on
Wednesday.
(Terence Gabriel)
*****
FOR WEDNESDAY'S LIVE MARKETS' POSTS PRIOR TO 0900 EST/1400
GMT - CLICK HERE
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(Terence Gabriel is a Reuters market analyst. The views
expressed are his own)
