BNN Bloomberg's closing bell update: Dec. 1, 2022
Stocks saw a lot of instability near a key technical level, with traders awaiting the all-important jobs report for clues on the Federal Reserve’s next policy steps. The dollar fell with bond yields.
A big fight is unfolding around the S&P 500’s 200-day moving average -- an indicator seen by some analysts as portending the continuation of a move when breached. The equity gauge crossed that mark after a massive rally driven by Jerome Powell’s signals of a downshift in the pace of tightening -- but struggled to find solid footing on Thursday.
“The shallower the pullback, the better the odds of the market moving further higher,” said Fawad Razaqzada, market analyst at City Index and Forex.com. “The bears, meanwhile, will need to defend this bearish trend line and push the market back below the 200 day, if they want to keep this year’s bearish trend intact now that we are heading into the final month of the year.”
Equities closed little changed after slumping on data showing American manufacturing contracted in November for the first time since May 2020. The report added to concern that Fed hikes will raise the odds of a recession and tempered optimism with news that a gauge of consumer prices had the second-smallest increase this year.
The Bloomberg Dollar Spot Index sank to its lowest since June. The Treasury rally gathered steam amid a pullback in expectations for Fed tightening. Bets on where the central bank rate will peak have now dropped below 4.9 per cent, according to swap markets. The current benchmark sits in a range between 3.75 per cent and 4 per cent.
The Fed Bank of Chicago appointed Austan Goolsbee, an economist and former adviser to President Barack Obama, as its new chief to replace Charles Evans, who retires in January. In an Oct. 31 Bloomberg Radio interview, Goolsbee said a peak for the benchmark federal funds rate around 5 per cent “kind of makes sense to me.”
The remarkably resilient U.S. jobs market is beginning to cool, but Friday’s employment report will fall far short of the turning point Fed officials are seeking in their battle to beat back inflation. There are signs labor demand is ebbing, but a bigger slowdown is needed to bring that demand more in line with labor supply in order to contain wage growth.
The median projection in a Bloomberg survey of economists calls for payrolls to rise 200,000 in November and hourly earnings to climb 4.6 per cent from a year ago.
Worries about how far central bankers will go to rein in inflation have kept investors on edge, and equities volatile. JPMorgan Chase & Co.’s Dubravko Lakos-Bujas said sharp declines await U.S. stocks in the first half of 2023 against the backdrop of a mild recession and Fed hikes.
The prediction adds to calls from strategists at Goldman Sachs Group Inc. and Deutsche Bank AG that American equities are in for a wild ride next year.
“The next mountain needing to be conquered, and will be the 2023 focus I believe, is the economic consequences to such a sharp rise in interest rates, the higher cost of capital that both businesses and households have to deal with and the recession it creates,” said Peter Boockvar, chief investment officer at Bleakley Financial Group.
“We do not think the macroeconomic conditions for a sustained market rally are yet in place,” said Mark Haefele, chief investment officer at UBS Global Wealth Management, who sees the cumulative impact of hikes weighing on economic growth and corporate profits.
From a technical standpoint, however, history offers encouraging signs for U.S. stocks once they break above a longer-term trend line after spending months below it.
In the previous 13 times the S&P 500 was beneath the 200-day moving average for more than six months and then closed above it, the index posted an average return of 12 per cent over the next six months and 19 per cent a year later, according to Ryan Detrick, chief market strategist at Carson Group.
Jonathan Krinsky at BTIG notes that while a big rally got the U.S. equity gauge through its 200-day moving average, it also took it right to the downtrend line from the January highs.
“The slope of the 200-DMA is often more important than whether price is above or below it,” he added. “Consider in 2002, there were several rally attempts that did get above the declining 200-DMA, only to fail and roll over to new lows.”
Key events this week:
- U.S. unemployment, nonfarm payrolls, Friday
- ECB’s Christine Lagarde speaks, Friday
Some of the main moves in markets:
- The S&P 500 was little changed as of 4 p.m. New York time
- The Nasdaq 100 was little changed
- The Dow Jones Industrial Average fell 0.6 per cent
- The MSCI World index rose 0.8 per cent
- The Bloomberg Dollar Spot Index fell 1 per cent
- The euro rose 1.1 per cent to US$1.0523
- The British pound rose 1.5 per cent to US$1.2243
- The Japanese yen rose 2 per cent to 135.35 per dollar
- Bitcoin fell 1.1 per cent to US$16,914.09
- Ether fell 1.9 per cent to US$1,271.94
- The yield on 10-year Treasuries declined 10 basis points to 3.51 per cent
- Germany’s 10-year yield declined 12 basis points to 1.81 per cent
- Britain’s 10-year yield declined six basis points to 3.10 per cent
- West Texas Intermediate crude rose 0.9 per cent to US$81.26 a barrel
- Gold futures rose 3.3 per cent to US$1,817.20 an ounce