Asia Open: Better Aligned
2023.02.24 06:34
MARKETS
US equities were stronger Thursday, with the up 0.4% after spending most of the session in negative territory before recovering in the afternoon—US10yr yields down 4bps to 3.88%. Rates are finally stabilizing as the Market is better aligned with the FOMC board hawks. Most Fed members are advocating another 75 bp above current levels, roughly in line with where current market pricing expects the terminal to the peak.
- US are better; initial claims are down 3k to 192k, and consensus looked for a 5k rise. Continuing claims down 37k to 1654k, consensus looked for a 9k rise.
- US revised down: to 2.7% qoq saar in the second read for Q4 from 2.9% initially, reflecting a downward revision to consumer spending.
- US revised to 4.3% qoq saar in Q4, from 3.9%qoq initially. The revision reflects updated seasonal factors.
Despite inflation not falling in a tidy fashion and a hawkish central bank environment that stock pickers are slogging through, equities are still pricing in a very soft landing. Indeed, for a market that not too long ago believed we were in a recession or heading towards one, a 2%+ growth rate is not something to fret about. Additionally, the downward revision to 4Q GDP that we saw was driven by personal consumption — an area where more recent data points (January retail sales, for example) have been relatively strong. The next critical sentiment test is the January PCE, which will be released later on Friday.
The biggest problem for US investors is markets are getting too much of a good thing in the form of consistently strong US economic data. But a shift in economic data that could be more favorable for risk is a few weeks away in the form of February releases on consumption, labor, and inflation. And what could emerge as risk supportive is the seasonal adjustment for February US non-farm payrolls, which revert from positive (+3mm) to negative (-600k700k), which one might think of as flipping the hawkish-dove meter a tad less hawkish.
The European growth outlook has improved despite some softer December hard data points, driven by further declines in prices and robust activity data out of China.
China data void ends in just under a week. Investors could start legging back into China-sensitive assets as the official and Caixin manufacturing PMIs should bounce well, given the rise in the metropolitan and rural mobility data.
OIL
While we are at the window where oil traders could position ahead of what is expected to be a robust China economic data calendar next week, the significant offset is that China (and India) continued to increase its intake of Urals last month.
A lot of that isn’t going to arrive until March, which could keep US inventories “higher for longer” (to borrow a phrase from the Fed) than expected, hence limiting weekly gains due to the ongoing inventory glut. The Market needs to chew through a lot of inventory before getting the green light to move back over $85.00 per barrel convincingly.
