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Main U.S. equity indexes pare gains, now ~flat
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Financials weakest S&P 500 sector; utilities lead gainers
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Euro STOXX 600 index ends off ~0.2%
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Dollar, crude dip; gold up; bitcoin off ~1%
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U.S. 10-Year Treasury yield edges down to ~3.97%
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FED MAY MISS HUGE TIGHTENING OF HOUSEHOLD CREDIT COSTS (1218 ET/1718 GMT) Effective U.S. household borrowing costs have tightened dramatically since the Fed began raising interest rates last year and with further hikes expected, a "capitulation of consumption" may be in store, says Joe LaVorgna at Japan's SMBC Group. The Fed may be missing this tightening to the highest reading in two decades because traditional measures of financial conditions mask a historic increase in household borrowing costs, says LaVorgna, chief U.S. economist at SMBC. The Chicago Fed's national financial conditions index (NFCI) shows a dramatic easing in conditions since October to a level not seen since March 2022, when the U.S. central bank began raising rates. "The Chicago Fed NFCI series almost never shows any tightening in financial conditions," says LaVorgna in a note. "In fact, the index showed easy financial conditions before the onset of the 2001 recession despite a plunge in stock prices." In another example, conditions were marginally tight from September to December in 2011 after the fallout of the debt ceiling debacle and ensuing downgrade of U.S. government debt, he said. The NFCI was unchanged at –0.38 in the week ending March 3, the Chicago Fed said on Wednesday. Negative values have been historically associated with looser-than-average financial conditions, the bank said. The index, which employs 105 measures of financial activity, may be over-engineered, LaVorgna says. Whatever the reason, conditions for the consumer have massively tightened, as seen by an effective household borrowing rate LaVorgna created. LaVorgna employs a weighted average of household debt with weights determined by their respective share of total consumer borrowing. Mortgages have the largest weight at 65%, followed by personal loans (20%), auto loans (8%) and credit cards (7%).
The massive tightening explains the current deep recession in the U.S. housing market, he said.
"In general, the longer household borrowing rates remain high - and they are likely to go up more with further Fed hikes - the greater the likelihood we see a capitulation in consumption," LaVorgna said.
(Herbert Lash)
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JOBLESS CLAIMS, PLANNED LAYOFFS SOOTH POWELL'S HAWKISH STING (1101 EST/1601 GMT) Signs of cracks in the ultra-tight U.S. labor market appeared in two sets of data released on Thursday, as investors await the February employment report due on Friday. In the upside-down universe of Fed tightening, bad news can be good news. And any indication that the jobs landscape is cooling could well be interpreted as a welcome signs that Powell & Co's efforts rein in inflation by cooling the economy are working as intended.
The number of U.S. workers submitting a first-time application for unemployment checks jumped by 11% to 211,000 last week, according to the Labor Department. The number landed to the north of the 195,000 consensus and marks the series' first week above the 200,000 mark - a level associated with healthy labor market churn - since mid January. "As the Fed presses ahead with more rate hikes, we expect layoffs to eventually rise significantly," says Michael Pearce, lead U.S. economist at Oxford Economics. "But in contrast to past downturns, the difficulty of finding workers means firms are likely to be reluctant to let go of employees and may respond to weaker demand by first cutting hours or offering smaller wage increases instead." Ongoing claims also increased, rising 4.2% to 1.718 million, much heftier than the meager increase expected, returning to pre-pandemic levels for the first time this year.
"The bigger picture here is that claims remain very low and range-bound," writes Ian Shepherdson, chief economist at Pantheon Macroeconomics. "That said, the latest data from Challenger, released earlier today, show that the number of layoffs announced in January and February was the highest since 2009, and nearly double the pre-Covid trend." All of which provides a convenient segue.
There were 77,770 announced firings at U.S. companies in February. While it marks a 24% drop from the January print, it's a 410% increase year-over-year the worst February since 2009, the nadir of Great Recession, according to executive outplacement firm Challenger, Gray & Christmas (CGC). "Certainly, employers are paying attention to rate increase plans from the Fed," says Andrew Challenger, senior vice president at CGC. "Many have been planning for a downturn for months, cutting costs elsewhere." "If things continue to cool, layoffs are typically the last piece in company cost-cutting strategies," he adds. Of the CGC-defined sectors to have suffered the largest year-to-date layoffs, tech leads the pack by a mile, with more than four times the number of planned pink slips than the next hardest-hit sectors, retail and finance.
The data is sending Wall Street modestly higher, with tech stocks - particularly chips - having a better day than most.
(Stephen Culp)
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U.S. STOCKS CLAW HIGHER, THOUGH BANKS STILL WEAK (1010 EST/1510 GMT) Wall Street's main indexes are modestly higher early on Thursday as a greater-than-expected rise in weekly jobless claims eased some rate-hike jitters ahead of a key payrolls report that could determine the Fed's monetary policy path. A majority of S&P 500 sectors are rallying with energy and tech both posting gains of more than 1%. Financials are the biggest loser. This with banks once again among weaker groups. The S&P 500 banks index is down more than 2.5%, bringing its week-to-date decline to more than 7%. SPXBK is on track for its biggest weekly decline since June of last year. FANGs and chips are both rising, and growth is on pace to outperform value for a fifth-straight session. Meanwhile, the S&P 500, at around 4,002, is churning near its sticky 50-day moving average which now resides around 4,000. The 100- and 200-day moving averages are support in the 3,943-3,940 area. Here is a snapshot of where markets stood just after 1005 a.m. EST:
(Terence Gabriel)
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NASDAQ COMPOSITE: GOLDEN CROSS NEARS (0900 EST/1400 GMT) With the start of the new year, the Nasdaq Composite rallied strongly into its early February high. Since then, it has seen a choppy decline. Nevertheless, the tech-laden index is now up 10.6% year-to-date, and in what may be a constructive sign on the charts, a golden cross, where the 50-day moving average (DMA) crosses above the 200-day moving average, appears near:
The 50-DMA crossed below the 200-DMA (a death cross) on Feb. 18, 2022. The intermediate-term moving average has now been below the longer-term moving average for 263-straight trading days. That's the longest such streak since a 348-day trading-day run from January 2008 to June 2009. However, the spread between the rising 50-DMA, which ended Wednesday at 11,310, and the relatively flat 200-DMA, which ended Wednesday at about 11,404, has now narrowed to just -93.5 points. That's the tightest spread since Feb. 22, 2022, just shortly after the 50-DMA had crossed below the 200-DMA. With the 50-DMA now rising a little over 20 points per-session, a golden cross could occur over the next week or so. This especially if the IXIC were to use these moving averages as support and suddenly snap higher. However, if the IXIC breaks below the 50-DMA, it may lead to this moving average rolling under the 200-DMA if weakness were to intensify. Of note, the DJI saw a golden cross in mid-December of last year. The event occurred for the small-cap Russell 2000 in late January, and then for the S&P 500 in early February. None of these signals has yet to be nullified with a fresh death cross. This critical moment for the Nasdaq is approaching amid a number of major event risks in the form of a non-farm payroll report Friday, the latest CPI and retail sales data on March 14 and 15, and the next FOMC Meeting March 21-22. Thus, it remains to be seen of the Composite can join the golden-cross party, suggesting the potential that a major advance is under way.
(Terence Gabriel)
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(Terence Gabriel is a Reuters market analyst. The views
expressed are his own)
