US stocks edged lower after a mixed bag of economic data still keeps the inflation risk on the table. Earnings season is about to heat up soon and if Microsoft and Texas Instruments are too cautious with the outlook, that might kill risk appetite.
The US flash PMIs showed a steady improvement across both the manufacturing and service sectors, but also ended a seven-month sequence of moderating input price rises. The PMIs are positive for the growth outlook, but raises some concern that inflation may prove to be harder to bring down as faster increases in costs burdens are weighing on private sector firms.
The impressive US PMIs matched the eurozone’s strong prints, which could support the argument that both the Fed and the ECB can keep delivering their respective rate hikes. The UK PMIs were disappointing as services deteriorated further.
A lot of major stocks on the NYSE had some wild moves as low volumes were accompanied with prices that didn’t match up to the fundamentals. Erroneous prices will lead to some chaos for some traders that were taking on positions at the open. An apparent technical issue will disrupt what the opening price will be for many traders. This mess will take some time to clean up and some traders that tried to take advantage of the wrong price might find their orders blown up.
3M Co delivered rather disappointing guidance that shook up some of the optimism that was brewing about this economy. The maker of a lot of stuff will cut 2,500 manufacturing jobs as demand weakens. They are facing rapid declines in consumer facing markets and that is a big red flag for a lot of investors.
Crude prices tumbled after a steady dose of bad news from the economy: both manufacturing and service sectors remained in contraction territory and on many downbeat earnings. The headlines were mostly not supportive of an improving outlook. Traders digested another weak Fed manufacturing report and disappointing earnings guidance from 3M and Union Pacific. It seems that China’s reopening momentum has taken WTI crude back to the $80 level but that might be as far as it goes over the short-term.
Energy traders will wait to see how the supply side of the market evolves. If the US keeps posting massive builds as demand softens that could put some pressure on oil. Expectations are growing for OPEC+ to keep output steady, but if demand fears grow, they could easily reduce output.
Gold prices remain elevated but are wavering after yields decline on growth fears and after better-than-expected PMI data. Gold appears poised to consolidate here until we get beyond Q4 GDP and the FOMC decision. Earnings have been coming in soft and a weakening economy should keep safe-haven flows stable for gold.
Bitcoin is consolidating after making a five-month high. The recent rally couldn’t break above the $23,500 level, which could pave the way for a minor dip towards the $22,000 region. There are too many big macro events ahead that Bitcoin won’t do much of anything. When all the dust settles from Q4 GDP, the Fed’s preferred inflation gauge, and the FOMC decision, strong resistance should come from the $25,000 level. Bitcoin’s rally is about to get very interesting or it could be ripe for a short-term pullback.
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