Tightening Thursday (ECB & friends), US data/surveys, labor market refuses to break, oil slumps, gold lower on strong dollar, bitcoin follows broader market

US stocks didn’t stand a chance today after digesting a hawkish FOMC decision and a round of data/surveys that support the argument that the economy is recession bound.

The labor market might not be breaking but it is becoming clear the consumer is weakening and manufacturing activity is in a recession. ​ US retail sales posted the largest drop in nearly a year. ​ ​Both the Empire manufacturing survey and Philly Fed business outlook showed factory activity is in a challenging environment. ​ The economy is clearly in slowdown mode and businesses are still slow with layoff announcements. ​ Labor market weakness will be more noticeable next year and that should help reduce some of the constant wage pressures we are still seeing. ​

BOE

The Bank of England raised the key rate by a half-point to 3.50%, which is the highest level since 2008. ​ The MPC broke three ways with the vote as six members supported the 50 bp increase, while Catherine Mann wanted a more aggressive 75 bp hike, while Silvana Tenreyro and Swati Dhingra wanted to keep rates steady. ​ The minutes noted that more rate increases could be needed.

The British pound declined following the somewhat dovish statement as bets on future hikes have been lowered.

ECB

The ECB rate decision sent European yields surging higher after President Lagarde signaled they will raise further and that rate increases will need to be significant and at a steady pace. ​ Lagarde reset market expectations for how high rates can go, which should cripple the economy.

The ECB expects a shallow and short recession as inflation risk is skewed to the upside. If the next couple of meetings contain consecutive half-point rate increases, the eurozone will have a much deeper recession. ​ The euro was unable to hold onto gains as the flight-to-safety eventually drove investors back into the dollar.

Central Bank Decisions Galore

The ECB stole the spotlight today, but several other central banks had key policy decisions. ​ Both SNB and Norges did not surprise with their rate increases, as both kept the door open for further tightening. ​ The Philippines Central Bank (BSP) noted they are prepared to take all necessary action to return inflation back to its target. Taiwan’s central bank raised rates and expects inflation to fall below 2% next year. Global economic activity will continue to weaken after a chorus of central banks made policy much more restrictive. ​ ​

Crypto

Bitcoin is softening as risk aversion hits Wall Street after major central banks signal that more work needs to be done to combat inflation. ​ Bitcoin’s weakness is somewhat limited and won’t draw much attention unless price action dips below the $16,800 level. ​ ​

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