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Main U.S. indexes mixed; chips stocks show strength
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Energy weakest S&P 500 sector; real estate leads gainers
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Dollar ~flat; crude, bitcoin lower; gold up
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U.S. 10-Year Treasury yield dips to ~3.95%
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YIELD CURVE SIGNALING 2025 RECESSION -CREDIT SUISSE (1244 EST/1744 GMT) A U.S. recession may still be two and a half years away, based on the current U.S. yield curve trend and a higher inflation period, Jonathan Golub, chief U.S. equity strategist & head of quantitative research at Credit Suisse Securities, wrote in a research note Wednesday. "Of all of the recessionary indicators, the shape of the yield curve (3mo-10yr spread) has proven to be the most predictive," he wrote.
Excluding the pandemic period over the last 50 years, the curve has inverted six times and recessions have followed by 11 months on average, he wrote. Right now, Treasury futures are indicating an inverted yield curve through January 2026, and that maximum inversion will occur in May 2023 at a negative 140 basis points, he said. But the relationship between the curve and recessions is different when inflation is high versus when it is low, and "using the high inflation period as a guide, futures point to an August 2025 recession onset, roughly 2½ years from today," Golub wrote. On Wednesday, part of the U.S. Treasury yield curve, measuring the gap between yields on three-month and 10-year Treasury notes , was at a negative 104 basis points.
(Caroline Valetkevitch)
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WEDNESDAY DATA ROOTS FOR FED HAWKS: JOLTS, ADP, TRADE BALANCE, MORTGAGES (1140 EST/1640 GMT) Data released on Wednesday painted a picture of U.S. economic hardiness, which did very little to assuage fears that the big bad hawk - namely the Federal Reserve - will ease up on its relentless barrage of interest rate hikes
Job openings in the U.S. decreased by 3.6% in January to 10.824 million, landing to the north of the 10.5 million consensus.
The Labor Department's job openings and labor turnover survey (JOLTS) , which tracks labor market churn, also showed hires ticking up, layoffs increasing and quits pulling back. "The level of job openings has looked very high by pre-pandemic standards over the past year and a half or so through some ups and downs in the monthly figures," writes Daniel Silver at JP Morgan. "The number of quits, meanwhile, has been on a clearer downward trend for almost a year now." The quit rate is often seen as a barometer of consumer expectations, as workers are unlikely to walk away from a gig in times of economic uncertainty.
Separately, private sector employers added 242,000 workers in February, handily overshooting the 200,000 consensus, according to payrolls processor ADP's National Employment index . The print rides 29,000 higher than number of private sector jobs analysts expect from the Labor Department's more comprehensive employment report on Friday. Even so, ADP has a spotty track record as a nonfarm private payrolls predictor - it undershot the January number by a small matter of 324,000. "ADP is an unreliable guide to payrolls," says Ian Shepherdson, chief economist at Pantheon Economics, who notes that four of the six readings since revamping its methodology came in below the official number "including the massive 337K undershoot in January."
Next, the trade gap between the value of goods and services imported to the U.S. and those exported abroad widened by 1.6% in January to $68.3 billion. Digging deeper into the Commerce Department's report, foreign demand for U.S. goods and services rebounded, with exports rising 3.4% after having softened by 1.2% in December.
But that was canceled out by American demand for imports, which accelerated to 3.0% from 1.1% the month prior. "The rebound in exports was particularly surprising, given the prior four months of declines," says Matthew Martin, U.S. economist at Oxford Economics. "And in tandem with the rise to imports, signify the economy is carrying plenty of momentum at the start of the year." The closely watched goods trade deficit with China widened by 7% to $25.16 billion.
Finally, mortgage demand staged a bit of a recovery last week, in spite of rising financing costs, per the Mortgage Bankers Association (MBA). While the average 30-year fixed contract rate edged up 8 basis points to 6.79% - which was last higher in November - applications for loans to purchase homes jumped 11.2%, easily offsetting a 1.4% drop in refi-demand It marked the 5th straight week in the march higher for mortgage rates, which has largely aped a similar upward trend in benchmark treasury yields. "Even with higher rates, there was an uptick in applications last week," says Joel Kan, MBA's deputy chief economist. "But this was in comparison to two weeks of declines to very low levels, including a holiday week." Even so, as laid out in the chart to follow, overall mortgage demand is down 59.9% from the same week last year:
(Stephen Culp)
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U.S. STOCKS TRY TO FIND FOOTING AS POWELL DAY 2 KICKS OFF (1015 EST/1515 GMT) The main U.S. stock indexes are little changed early on Wednesday after a sharp selloff in the previous session, with investors digesting more comments from Fed Chair Powell, as well as job openings data. Powell is testifying in front of the House Financial Services Committee. Meanwhile, February ADP national employment data, out at 0815 EST, was above estimates, as was January Jolts job openings released at 1000 EST. JOLTS came in at 10.824 million vs a 10.5 million estimate. Nevertheless, the U.S. 10-Year Treasury yield is falling to around 3.93%. Action below 3.9630% puts its six-week streak of higher closes in jeopardy. The S&P 500 index , now around 3,992, is trading shy of its 50-day moving average (DMA), which is now resistance at about 3,998. On the downside, the 100- and 200-DMAs are packed tightly in the 3,939-3,941 area. Here is a snapshot of where markets stood around 1015 EST:
(Terence Gabriel)
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FTSE: CAN IT REACH NEW HIGHS? (0941 EST/1441 GMT) There are not many equity indices hovering near record levels. Among these is the FTSE 100 , which is less than a couple of points below its latest peak hit in February. Question is: has the London benchmark the potential to climb even further?
Caroline Simmons, strategist at UBS Global Wealth Management, is upbeat and her argument is based on the deep valuation discount the FTSE carries relative to global peers. "The UK has a structural discount due to its lower growth-sector exposure," Simmons writes in a note this week. "But so long as growth and inflation are on the rise, equity markets generally gain over time. For now, the UK is outperforming the US equity market, and we expect it to continue to do so," she adds. Her target for the FTSE - which trades at a 20% discount to its own historical valuation and at a 30% discount to global equities - is 8,300 points by December 2023. That's a 4.7% upside from current levels. On top of that there is also a 4% dividend yield, which is enough for UBS to keep the FTSE among its most preferred equity regions in its asset class selection.
(Danilo Masoni)
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VC FUNDING DWINDLES IN FEBRUARY (0915 EST/1415 GMT)
Funding for venture-backed companies globally fell 43%
month-over-month to $18 billion in February 2023, Crunchbase
data showed as recession fears hurt investment appetite.
It's the first time global monthly funding has dropped below $20 billion since February 2020, data showed.
Funding last month tumbled 63% from $48.8 billion a year earlier with late-stage funding down the most, by 73%, while early-stage funding declining 52% year-over-year, Crunchbase said. January saw a boost from $10 billion raised by OpenAI, the startup behind ChatGPT. Corporate fundraising, from early stage venture capital to private equity, fell sharply in 2022 as rising interest rates, inflation and concern over the global economy heightened investor caution.
(Medha Singh)
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DOW INDUSTRIALS: TRADERS WATCH The RANGE (0900 EST/1400 GMT) The Dow Jones Industrial Average was the weakest of the main U.S. indexes on Tuesday, sliding 1.72% after Fed Chair Powell's hawkish testimony in front of the Senate banking committee.
Powell is scheduled for a repeat performance Wednesday in front of the House banking committee. Ahead of this, and in the wake of February ADP national employment which came in above estimates, e-mini Dow futures are just above flat.
Meanwhile, on the charts, the DJI, which closed at 32,856.46 on Tuesday, has ended each of the last 11 sessions inside the range defined by its 50- and 200-day moving averages (DMA):
The 50-DMA, which ended at 33,530 on Tuesday, is resistance, while the 200-DMA, which finished at 32,379, is support.
The DJI last closed below its 200-DMA on Nov. 9. Subsequently, the moving average successfully contained weakness in mid-December and again in early March. Therefore, traders will be focused on how the DJI behaves in the event it is tested again. A close back above the 50-DMA would look constructive, but the blue-chip average would then have to deal with the resistance line from its January 2022 record high which now resides around 34,000.
(Terence Gabriel)
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FOR WEDNESDAY'S LIVE MARKETS POSTS PRIOR TO 0900 EST/1400 GMT - CLICK HERE <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ DJI03082023 earlytrade03082023 JOLTS ADP Trade balance MBA ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Terence Gabriel is a Reuters market analyst. The views expressed are his own)
