Fasten Your Seatbelts
Big Data Week
Preface
As the market awaits some big events this week, there has been a notable slowdown in momentum on crypto and stocks. On Monday, the stock market is closed for Presidents Day before all the fun and games start.
Largely positive economic data and hawkish hints from several FOMC officials have shifted the odds higher for more rate hikes by the Federal Reserve while knocking back expectations of a rate cut before the end of 2023.
Economic Calendar
Highlights
- Manufacturing & Services PMI – Tuesday
- FOMC Minutes – Wednesday
- QoQ GDP Revision – Thursday
- PCE + Core PCE – Friday
Breakdown
Manufacturing & Services PMI – Tuesday
January output for both manufacturing and services PMI saw further contraction, with December’s composite reading being the second-lowest since the global financial crisis (early lockdown months excluded).
Any sub-50 reading indicates contraction, and we’ve now seen 7 consecutive months of declines. Commensurate with falling GDP, these are warning signals about the strength of the economy. The consensus for February Composite PMI is 47.5 vs 46.8 prior.
FOMC Minutes – Wednesday
Bond yields just rose for a third straight week, suggesting the Fed is likely to keep raising rates for longer and pushing the US dollar higher. In the last issue we also talked about futures market investors’ newly minted expectation of an increase in the fed-funds rate to ~5.2% from the summer through the end of the year.
Wednesday’s FOMC meeting minutes will be a pivotal focus for investors looking to find clues about the Fed’s rate hike schedule for the next several months. However, it must be said that these minutes took place before the recent jobs and ISM services data.
QoQ GDP Revision – Thursday
GDP has sharply rebounded in the previous two quarters in spite of higher interest rates, as retail and employment has remained strong. Consensus says the second estimate will remain unchanged at 2.9% annualized for Q4. Any upside surprise could put pressure on risk and upward momentum on the US dollar.
January personal income and spending numbers are also expected to rebound.
PCE + Core PCE – Friday
The US Core PCE Deflator has fallen sharply from 5.2% YoY in September down to 4.4% in December. This sparked the disinflation narrative that has driven speculation of rate cuts before the end of this year. Further sharp drops could bolster the narrative surrounding weaker price growth.
The fly in the ointment here is the recent payrolls and services data, which point toward a rebound in prices. Consensus is for a tick down on the YoY number to 4.1% in January, but an uptick to 0.4% MoM vs 0.3% in December. This could put pressure on risk.
Earnings
Notable earnings reports this week will come from Walmart, Coinbase, Nvidia, and Alibaba.
Quick Takes
Richmond Fed president says he likes the 25-basis-point path because “…it gives us the flexibility to respond to the economy”.
Wednesday’s FOMC minutes will reveal how many of his counterparts feel the same and how many want to go more aggressive.
Then a controversial view to challenge my bull bias. As much as I love trading markets from the long side, I also enjoy price drops that open up new opportunities.
If this does happen to stocks, then crypto winter is also bound to persist a while longer.
Chart of the Week
WOO is getting very close to a macro structural breakout and needs a weekly close above 0.2749 to do it. You gotta respect the lack of resistance after that point if bulls can succeed.
Jay Charles
Editor in Chief, The Trading Tank.
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