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DJI ends slightly green, S&P 500 dips, Nasdaq falls ~1.1%
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Cons disc weakest S&P 500 sector; utilities lead gainers
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Dollar up; gold ~flat; crude, bitcoin slip
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U.S. 10-Year Treasury yield falls to ~3.30%
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U.S. STOCKS WOBBLE AFTER BEING HIT WITH ANOTHER ROUND OF
DOUR DATA (1602 EDT/2002 GMT)
The S&P 500 and Nasdaq fell on Wednesday as a growing wave
of weak economic data deepened worries that the Federal
Reserve's rapid interest rate hikes might tip the U.S. economy
into a recession.
March ADP national employment came in below estimates as did
the March ISM non-manufacturing PMI.
The weak data helped push the U.S. 10-Year Treasury yield under 3.30%. At 3.2660%, the yield hit its lowest level since early-September of last year. Additionally, the 10-year yield is on track to end down for a sixth-straight day if it finishes below 3.3370%. That will be its longest run of lower closes since a 13-day slide during the February-March 2020 pandemic panic.
A majority of S&P 500 sectors closed lower on the day with more economically sensitive groups such as consumer discretionary and industrials among weaker groups. Defensive sectors such as utilities and staples gained. By a small margin, growth ended a four-session win streak vs value . Of note, with the market settling, volume on U.S. exchanges is just 10.15 billion shares, putting it on track to be one of the slower trading days of the year. Indeed, the average for the full session over the last 20 trading days is nearly 13 billion shares. Markets now await the latest read on jobless claims, which is due on Thursday, followed by the March non-farm payroll report on Friday. U.S. stocks will be closed that day for the Good Friday holiday. Here is a snapshot of where markets stood just moments after the 4 PM close:
(Terence Gabriel)
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AS CREDIT TIGHTENS, BEWARE THE DEBT MATURITY WALLS (1335 EDT/1735 GMT) Tighter bank lending is coming at the same time as large amounts of debt is scheduled to mature, which could make it more difficult for some companies to refinance, according to Morgan Stanley. The bank estimates that $5.3 trillion in public bonds and institutional loans are due to mature in global credit markets by year-end 2025, which is 26% of reference index notionals. U.S. commercial real estate (CRE) faces the most immediate risks. Nearly a third of the approximately $4.5 trillion outstanding in U.S. commercial real estate debt comes due before year-end 2025, and “the maturity wall here is front-loaded,” the bank said. Regional and local banks, which are “under intense scrutiny,” are the largest lenders to this asset class, while banks are also large buyers of agency and non-agency commercial mortgage-backed securities (CMBS). Regulatory changes could also potentially reduce banks’ ability to buy senior tranches of securitized products. In high yield, near-term maturities are modest and start to increase in the U.S. and emerging markets from 2024. Maturing debt is heavy in the “BB” rating tier in U.S. high yield bonds, but weaker in emerging market high yield and U.S. loans. The outlook for investment grade debt, meanwhile, is brighter. U.S. and European investment grade credit issuers face modest near-term maturities and have healthy cash balances.
And “while the incremental cost of refinancing can be 2-3 percentage points above in-place debt, the effect on coverage ratios can take time to feed through,” Morgan Stanley said.
(Karen Brettell)
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MONTHLY U.S. EQUITY OPTIONS VOLUME TOPS 1 BLN FOR THE FIRST TIME (1302 EDT/1702 GMT) Trading volume in U.S. equity options surpassed 1 billion in March, the first time in a single month, as turmoil in the banking sector roiled markets. Total options volume was 1.1 billion contracts last month, 12% higher than March 2022, according to the Options Clearing Corporation. The daily average volume year-to-date through March rose 8.4% from last year to 46.3 million contracts, the primary clearinghouse for U.S. options trades said on Tuesday. Silvergate Capital Corp wound down operations on March 8 and days later Silicon Valley Bank and Signature Bank were seized by regulators amid liquidity crises, denting investor confidence in the U.S. banking sector.
(Medha Singh)
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HOW MUCH WOULD OIL PRICES NEED TO RISE TO CAUSE A RECESSION? TRY DOUBLE (1215 EDT/1615 GMT) Surprise production cuts by OPEC+ have ramped up fears that oil prices will head significantly higher, making it more difficult for the Federal Reserve to stop hiking rates and leading to a higher risk of recession. But DataTrek Research say that oil prices are unlikely to directly lead to a downturn unless they rise by a lot - double in fact. “History shows it is hard (but not impossible) to have a recession in the US unless oil prices double in a year,” Nicholas Colas, Co-founder of DataTrek Research, said in a report. Colas notes that almost every US recession back to 1990 came with or was preceded by oil prices doubling, with the one exception being the 2020 Pandemic Recession. “A sudden spike in energy prices immediately crimps household budgets, and a doubling of these costs leaves consumers with no choice but to cut back on other spending,” Colas said. Oil prices are down 22% year-over-year, however. “That may not be enough to keep the US economy from a Fed-induced recession, but it could help whatever slowdown we get from being prolonged or excessively deep.” Colas also notes that the impact of changes in energy prices on overall U.S. inflation is not constant across time and that core inflation only tracks energy price increases “during periods of already fast rising prices.” “It would take a dramatic increase in oil prices to cause a US recession on its own, but much less to make the Fed’s goal of reducing inflation harder than it already is,” Colas concludes.
(Karen Brettell)
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WEDNESDAY DATA: EVERYTHING BAD IS BAD AGAIN (1150 EDT/1550 GMT) A load of damp economic data was dumped on investors' lawns on Wednesday. It's exactly what the Fed ordered, but it didn't exactly have market participants jumping for joy.
While signs of economic softness suggests the Fed's tightening is working as intended - and markets sometimes react positively to it - too much of a bad thing, as it turns out, is bad.
Private sector employers added 145,000 jobs in March, marking a steep 44% drop from February's upwardly revised 261,000. Payrolls processor ADP's National Employment index print fell a mile short of the 200,000 consensus, and suggests 70,000 fewer private job gains than analysts expect the Labor Department's more comprehensive employment report to show on Friday. Combined with Tuesday's JOLTS data, which showed a 6% drop in job openings, the report suggests the tight labor market - which has squeezed wages and helped keep inflation hot - could be starting to feel the effect of Powell & Co's restrictive policies. "Data show the labor market is only gradually softening in response to a rapid increase in interest rates," says Rubeela Farooqi, chief U.S. economist at High Frequency Economics. "But the pace should moderate as the lagged and cumulative effects of monetary policy spread more broadly through the economy." It should be noted that ADP is not a particularly reliable predictor of the Bureau of Labor Statistics (BLS) report. The graphic below shows the disparity between ADP and Labor Department private payrolls data:
Next, business activity in the U.S. services sector lost more momentum in March than analysts anticipated. The Institute for Supply Management's (ISM) non-manufacturing purchasing managers' index (PMI) dropped 3.9 points to 51.2 well below the expected 54.5, but remaining, for now, in expansion territory. A PMI reading above 50 indicates increased activity over the previous month. While noting a pull-back due to cooling new orders and an uneven employment picture, Anthony Nieves, chair of ISM's Services Business Survey Committee, says "the majority of respondents report a positive outlook on business conditions." Indeed, comments from the survey's respondents are peppered with "sales continue to increase" and "supply chains are back to normal" offsetting phrases like "shortages in general labor" and "economic uncertainty is still a concern."
S&P Global also had its say regarding services PMI, revising its final March reading down one full point to 52.3. "Greater service sector demand and increased pressure on capacity spurred another round of job creation, with the rate of employment growth quickening slightly to a six-month high," says Siân Jones, senior economist at S&P Global. "Concerns regarding the impact of inflation and higher interest rates on customer spending remained apparent, however." ISM and S&P Global PMIs differ in the weight they allocate to their various components (e.g., new orders, employment). Here's how closely the dueling indexes agree (or not):
The trade gap - or the value of goods and services imported to the U.S. and exported abroad - widened by 2.6% in February to $70.5 billion, more than the $69 billion deficit projected by economists.
But softening demand knew no borders - both imports and exports declined, by 2.7% and 1.5%, respectively. "Domestic demand continued to hold up better than demand overseas, leading to an incremental increases to the deficit, though there are signs US consumers and businesses lost some momentum," writes Matthew Martin, U.S. economist at Oxford Economics. "We expect net trade to pose a drag on GDP growth this year."
Demand for home loans dropped by 4.1% last week despite the downward trajectory of borrowing costs, according to the Mortgage Bankers Association (MBA) Following Treasury yields lower - as is its wont - the average 30-year fixed contract rate dipped 5 basis points to 6.40%.
Even so, applications for loans to purchase homes dropped 3.5% and refi demand slid by 5.4%. "Spring has arrived, but the housing market is missing the customary burst in listings and purchase activity that typically mark the season," says Mike Fratantoni, chief economist at MBA. "After four weeks of increasing purchase application activity, volume declined a bit this week even with another small drop in mortgage rates."
The DJI is slightly green in late-morning trade, while the S&P 500 is modestly lower. The Nasdaq is well into the red with mega-cap momentum stocks weighing heaviest.
(Stephen Culp)
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U.S. STOCKS TRIP OVER MORE WEAK DATA (1008 EDT/1408 GMT) Wall Street's main indexes are mixed early on Wednesday after weaker-than-expected private payrolls data for March deepened worries that the rapid interest rate hikes by the Federal Reserve may tip the U.S. economy into a recession. Then at 1000 EDT, the U.S. March ISM Non-Manufacturing PMI came in at 51.2 which was below the 54.5 estimate. The prior reading was 55.1.
According to the CME's FedWatch Tool, markets see a 66% chance that the FOMC will sit on its hands at the May 2-3 meeting and leave its target rate unchanged at 4.75%-5.00%. There is a 34% chance of a 25 basis point increase. Meanwhile, the U.S. 10-Year Treasury yield has come under 3.2850%, putting it at a fresh low back to September of last year. Defensive S&P 500 sectors are showing strength, while chips and FANGs are among weaker groups.
With this, growth's four-day win streak vs value is in jeopardy. Of note, despite an early red tide, there appears to be some indecision under the surface. As stands, the number of unchanged NYSE stocks as a percentage of issues traded is 9%, or its highest level since the NYSE switched to decimal trading in January 2001. Here is a snapshot of where markets stood at 1012 EDT:
(Terence Gabriel)
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NASDAQ COMPOSITE: BUMPING UP AGAINST A CEILING? (0900 EDT/1300 GMT) Equity market bulls were heartened last week as the Nasdaq Composite broke out above the weekly resistance line from its November 2021 record high. That said, the IXIC's late-2022 high remains an especially strong ceiling:
In September of last year, the Composite put in a high at 12,270.189. After hitting new lows later in the year, the IXIC then rallied into an early February high at 12,269.555. After stalling less than one point from the September high, the IXIC suffered another pullback into mid-March. With a three-week rally, and last week's thrust above the resistance line, the Composite hit a high of 12,227.932, before ending at 12,221.907. Thus, it ended last week only around 42 points, or 0.3%, from the September high. So far this week, the IXIC's high is 12,224.68 on Tuesday, the IXIC ended at 12,126.327, putting it down about 0.8% this week.
Now, in the wake of the release of below expectations ADP national employment data at 0815 AM EDT, e-mini Nasdaq 100 futures are suggesting a slight Nasdaq 100 index dip at the open. In any event, traders will be focused on whether the Composite can re-group, and ultimately break through the ceiling, potentially clearing the way for further gains.
(Terence Gabriel)
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FOR WEDNESDAY'S LIVE MARKETS POSTS PRIOR TO 0900 EDT/1300 GMT - CLICK HERE
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(Terence Gabriel is a Reuters market analyst. The views
expressed are his own)
