Markets Lift Off!
What We Learned During FOMC Week
It’s been a big week, and I’ll condense all the key data to make this report succinct.
You may be wondering why the market went full bull mode on Wednesday following the FOMC meeting. Well, there were contributing factors both during and leading up to Powell’s press briefing. In my view, they were as follows:
- Recent data shows disinflation has begun and the market believes the Fed has done enough.
- Employment finally shows some delicate signs of slowing.
- Manufacturing has weakened appreciably.
- Market technicals were already positioned in bullish fashion.
- This feels like one of the most hated rallies in years.
You’ll notice I’ve listed the fundamental arguments above the technical and emotional ones. That’s because this newsletter is focused on the data and using it to lead our bias rather than to confirm it. I try to keep things as objective as possible.
Latest Economic Data
ADP Employment Change
- 106K* vs 178K consensus and 253K prior
*ADP notes employment was softer due to extreme weather in the US in January
US Employment Cost Index QoQ
- 1% vs 1.1% consensus and 1.2% prior
JOLTS Job Openings
- 11M vs 10.25M consensus and 10.46M prior
ISM Manufacturing PMI
- 47.4 vs 48 consensus and 48.4 prior
Charts and Context
- Private businesses in the US created 106K jobs in January of 2023, well below an upwardly revised 253K in December and market forecasts of 178K (Source).
Wages and salaries which make up about 70% of employment costs rose 1% in Q4 vs 1.3% in Q3. This was the third straight QoQ decline (Source).
The number of job openings in the United States increased to 11.0 million in December of 2022, the most in 5 months and above market expectations of 10.25 million (Source).
ISM Manufacturing PMI fell to 47.4 in January, the lowest since May 2020 at the height of the covid pandemic and below market forecasts of 48. This was the third consecutive month of declining factory activity, although the trend has been weakening since September. Any reading below 50 shows contraction.
Key Takeaways
The private sector added fewer jobs than expected, labour costs are coming down, and manufacturing continues to cool off. However, the JOLTS job openings uptick is the one data point that could have turned Powell into a hawk…
Powell seemed extremely confident and optimistic about the Fed’s success, even hinting strongly at a soft landing.
This is a different Jerome Powell than we’ve seen over the past few months. What did they put in his Corn Flakes? Whatever it was, the market loved it.
This might be naive to say, but perhaps the Fed is aware of the outward labour market strength but underlying weakness we’ve been discussing over the past few weeks. In case you missed the recent updates, you can find them all here.
If you take jobs out of the equation, we could hit pause on rate hikes right now. And maybe we should.
Quick Takes
I don’t disagree with what Jurrien is implying here, but if you look at his dataset, EPS estimates also dipped in early-2020 before quickly rebounding. The decline likely won’t be as acute this time, but will affect more companies and people (think layoffs) if it’s protracted. A trend worth watching.
Dan from The Chart Guys has been one of the most influential people throughout my trading journey. He has started putting out a monthly recap which includes a preview of the potential new trends he’s on the lookout for.
His Twitter and YouTube content is pure gold.
My sources have a consensus of +185k jobs, but close enough. Above 200k and we may run into some trouble.
Technical Analysis Corner
BTC Weekly Chart
On the weekly timeframe, we’ve edged up closer to 25k resistance following the FOMC meeting and ahead of Friday’s all-important Nonfarm Payrolls report. There’s plenty of room to work between here and the diagonal trend-line (currently around 21k). The longer price consolidated in this area, the further away the diagonal gets.
LH resistance at 25.2k must be broken to change the weekly trend.
BTC 12H Chart
The horizontal channel we’d been tracking broke out above 23.3k again, but we got a strong bearish divergence on this attempt as well. Failure to hold the 23.1k diagonal brings channel support of 22.3k into play. Below that I’d be targeting the red shaded area. Still looking for a 25.2k test if bulls take control after NFP.
ETH Daily Chart
ETH failed a big test at $1680 and is looking for a higher low. Ideally it holds above the $1580 breakout area. Below that is the $1500 diagonal. The red lines below that could come into play if we do get a deeper pullback on BTC.
SPY Daily Chart
We’ve had great progress since last week, and sure enough claiming the weekly trend-line and 50WMA was the golden ticket for bulls. A little caution here however, as we zoom in on the daily and discover an inefficiency from Thursday’s gap open. We may fill this void toward 410.80, especially with some weaker-than-expected tech earnings on Apple, Amazon and Alphabet.
Bulls will need a higher low relative to 400.28 to continue this uptrend in the coming weeks. My next levels are the swing high near 432, then 450, 472.
Jay Charles
Editor in Chief, The Trading Tank.
Disclaimer: The publisher does not guarantee the accuracy or completeness of the information provided in this page. All statements and expressions herein are the sole opinion of the author.
The Trading Tank is a publisher of financial information and not an investment advisor. We do not provide personalized or individualized investment advice or information that is tailored to the needs of any particular recipient.
THE INFORMATION CONTAINED ON THIS WEBSITE IS NOT AND SHOULD NOT BE CONSTRUED AS INVESTMENT ADVICE. INVESTORS SHOULD MAKE THEIR OWN INVESTIGATION AND DECISIONS REGARDING THE PROSPECTS OF ANY COMPANY OR PUBLICLY TRADED ASSET DISCUSSED HEREIN BASED ON SUCH INVESTORS’ OWN REVIEW OF PUBLICLY AVAILABLE INFORMATION AND SHOULD NOT RELY ON THE INFORMATION CONTAINED HEREIN.
