MARKETS
US stocks are trading notably lower Thursday ahead of Friday's significant PCE inflation release and amidst what is traditionally a low volume/liquidity period, possibly exacerbating the momentum such as we are likely experiencing today.
Nothing in the data was shocking or swung the debate around a soft landing or recession. Weekly jobless claims crept up as expected --a necessary negative to get the labour market back in balance and bring down wage inflation. The final revised 3Q GDP report is dated, but the report was upwardly revised, revealing an even more resilient consumer than we previously realized
On top of these new data points, we are learning that forthcoming fiscal stimulus from Congress may be better than investors previously anticipated. That could make the Fed's job more challenging, but yields are not moving to confirm that signal.
Against what appeared to be a better-than-expected consumer backdrop and fiscal stimulus, the S&P 500 has lost over 2% of its value today. But the lack of shift in bond markets with yields on 10-year US Treasuries unchanged -- suggests that the movement we see in stocks is not tied to fundamentals but rather likely an exaggerated positioning event ahead of Friday's PCE inflation report.
Macro Worry Shift?
As we wrote on Wednesday, we didn't think 2022 would not go quietly into the night despite the underlying trend in US inflation snapping lower. And If you take a step back, the overarching market narrative and the principal macro worry have shifted from inflation to recession. Those recession fears might be too hard for investors to shake, with most, if not all, of Wall Street calling for a down stock cycle.
OIL
Oil prices appear to follow the big boards today and getting weighed down by a stronger US dollar, with cross-asset markets held hostage by risk aversion probably more closely linked to Fed-induced recession fears.
PCE
PCE inflation is reportedly the type of inflation that the Fed watches closely. And the Fed is tightening monetary policy aggressively in a concerted effort to stave off inflation. So tomorrow's report matters to monetary policy watchers.
Still, the Friday report will be released when many people are on vacation, making for a potentially shallow liquidity trading event on an exceptionally high volatility data day.
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