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.
US data
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.
FX
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
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.
This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.
With more than 20 years’ trading experience, Ed Moya is a senior market analyst with OANDA, producing up-to-the-minute intermarket analysis, coverage of geopolitical events, central bank policies and market reaction to corporate news. His particular expertise lies across a wide range of asset classes including FX, commodities, fixed income, stocks and cryptocurrencies.
Over the course of his career, Ed has worked with some of the leading forex brokerages, research teams and news departments on Wall Street including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news.
Based in New York, Ed is a regular guest on several major financial television networks including CNBC, Bloomberg TV, Yahoo! Finance Live, Fox Business and Sky TV. His views are trusted by the world’s most renowned global newswires including Reuters, Bloomberg and the Associated Press, and he is regularly quoted in leading publications such as MSN, MarketWatch, Forbes, Breitbart, The New York Times and The Wall Street Journal.
Ed holds a BA in Economics from Rutgers University.
