US stocks were unable to hold onto earlier gains as Wall Street digested a swathe of economic data that showed inflation is easing and the labor market is cooling. It’s been a nice rally but no one wants to be aggressively bullish heading into the NFP report. Yesterday’s Fed Chair Powell speech was good news for risky assets as he focused on inflation coming down and that the economy is doing well. The risks of overtightening have many expecting the Fed to end its tightening cycle early next year and that will continue if the labor market softens quickly.
Earlier, investors were looking for any signs to buy stocks after reports that China was getting ready to release new Covid guidelines. China is far from willing to completely relax its guidelines, but these next steps could help end protests.
The Fed’s preferred inflation gauge grew 5% from a year ago, confirming the recent trend of falling pricing data points. The closely watched ISM report fell into contraction territory, reaching the lowest levels since the pandemic recovery began. The ISM’s prices paid also dropped to the lowest levels since May 2020. October personal income and spending data were rather strong but no one expects that to continue going forward.
The initial jobless claims headline reading showed the labor market is still strong. First-time claims fell by 16,000 to 225,000, which was lower than expected and well below the highs seen in the summer. Continuing claims was interesting as it jumped to 1.61 million, which is getting closer to the pre-pandemic average of 1.7 million.
The trends are clear for inflation, but the big question mark is if the labor market is going to have a broader slowdown. Tomorrow’s NFP report will be important as it could move forward bets that inflation will continue to decline.
The BOJ’s Tamura made quite a first impression to fx traders. Tamura helped send the yen lower after he noted, “It would be appropriate to conduct a review at the right time, including the monetary policy framework and inflation target.” Currency traders are used to Japan always having ultra-loose policy but that seems like it will have to change in the new year.
Cryptos are struggling today as the earlier rally faded ahead of NFPs and as concerns brew that Tether loans could be the next big risk for the cryptoverse. Stablecoins are an important part of the crypto world and if one of the major ones break, that will send bitcoin and ethereum to new lows.
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