Bad News Is Good, Powell On Deck | Morning Express | 1/9/2023

Data and Fed

• Bad is good, a recessionary-like ISM Services read helped power the S&P to three-week highs.
• First, on Friday, Nonfarm Payrolls for December was a goldilocks report. Job growth beat at 223k vs 200k expected, and November was revised lower by 7k. However, as we noted, Wage Growth was front and center, lower than expected at +0.3% m/m vs +0.4% and +4.6% y/y vs +5.0%. Also, November Wages were revised lower by two and three-tenths, respectively.
• The Unemployment Rate remains a wildcard, exuding the distortions we have cited, falling to 3.5% from 3.7%, although the Participation Rate ticked up one-tenth to 62.3%.
• The Services sector is typically the last to drop in a recession, and ISM Non-Manufacturing contracted at 49.6 vs the expectation of a robust expansion at 55.0. Although Prices expanded at an eye-popping 67.6, it was the lightest expansion since January 2021. However, New Orders contracted at 45.2, the worst since May 2020.
• Factory Orders for November also fell more than expected at -1.8% vs -0.8% expected.
• On Thursday, after a trio of strong jobs data (JOLTs for November, ADP, and Initial Claims), the odds of a 25bps hike on February 2nd slipped to about 60%, with 40% being 50bps. This has rebounded to 77.2% this morning.
• One piece of data is not enough to pause Fed rate hikes, but there is a trend brewing, and it leads into Fed Chair Powell tomorrow morning and CPI Thursday.

Earnings and Warnings

• Earnings season kicks off with the banks on Friday; JPM, BAC, WFC, C, and more. Taiwan Semiconductor will be a crucial report Thursday, and United Healthcare, the largest company this week, also reports Friday morning.
• Layoffs, Goldman Sachs, leads headlines, cutting 3,200, and Amazon ramps cuts to 18,000 from 10,000.
• Lululemon is -10% premarket after revising Q4 guidance on margin squeeze.
• Macy’s got the ball rolling with a warning after the close Friday, expecting holiday sales to be light, the stock is -5% ahead of the bell.

Dollar and Yield Curve

• The U.S. Dollar Index is testing the December 30th low, the lowest since December 15th, after data miss Friday.
• Chinese Yuan powers higher on Dollar weakness, reopening plans, and after a top official called the end of the two-year regulator squeeze on internet companies. BABA is +5% premarket after closing +21.9% on Friday to start the month.
• U.S. 10-year slips below 3.6%, lowest since December 19th.
• 2s10s spread rebounds on Friday (chart below)
• 3m10yr spread hits record low on Friday, lower today, but rebounds sharply (historical monthly chart below)
• Is this capitulation in the yield curve? This is tradable futures spread, contact our trade desk at 312-278-0500 or email us at info@bluelinefutures.com to discuss.