ALB Limited 31.01.2023

Both US employment and the dollar index may decline

Last week, US indices did not start the week very well. In the first 3 days of the week, sales in the indices have been seen. The most important reason for this sale was the "bad data bad market" pricing after the bad macroeconomic data in the first 3 days. Although the balance sheets in the first 3 days followed a mixed course, the demoralization of important balance sheets such as Microsoft was enough to reduce the risk appetite. We got the first manufacturing and services PMI data from the US on Tuesday. Although both data were above expectations, the fact that it was below the threshold value of 50, triggered recession concerns and was priced negatively. One day later, on Thursday, there was a very intense data flow in the USA again. On Thursday, the US economy's fourth-quarter growth data came in at 2.9% (the expectation was 2.6%), which led to the disintegration of the recession concerns at the beginning of the week, boosting morale in the market with the "good data good market" pricing. Another important reason for the rising morale was the fact that the core figure of durable goods orders, which is one of the leading indicators of the US economy, was above expectations on Thursday. With this good macroeconomic data, Tesla's sales and profits were above expectations and they reached a record level in vehicle deliveries, led by Nasdaq on Thursday and Friday, carried the market up. Another important piece of data that came in on Thursday was the weekly jobless claims. When this data came lower than both expectations and last week's data with 186 thousand (expected 205 thousand), "we can see a more aggressive FED with the labor market still tight" pricing appeared. Despite this, on Thursday, investors ignored the declining applications for unemployment benefits and favored the good 4th quarter economic growth data and increased risk appetite. This time on Friday, the core personal consumption expenditures price index (PCE) data for December, which is the favorite inflation-leading indicator for the US, came in. PCE fell from 5.5% to 5% on an annual basis in line with expectations, while core PCE fell from 4.7% to 4.4% annually, again in line with expectations. These data further strengthened the thesis that " the USA has seen worse inflation, inflation continues to decline". The most critical agenda item for the USA this week will be the FED interest rate decision on February 1 Frankly, if I say that the market is very sure about the interest rate decision, I wouldn't be saying anything wrong. Everyone knows that the FED will raise 25bp. However, the real unknown and the one that will determine the market pricing on the evening of the FED will be Powell's speech. Frankly, considering the recent easing in the US financial conditions index, Powell needs to make a hawkish speech. At this point, my main scenario is at worst Powell giving a speech that matches the hawkish tone of recent meetings. Frankly, I don't think there will be a more dovish Powell than in previous meetings. Although Powell is a hawk, he can see what he wants to see in the market and can make positive pricing. In the meantime, let me make a final note, the US economist and former US Treasury Secretary Larry Summers stated that the FED should avoid giving a new increase signal due to the uncertainties in the economic outlook after the expected interest rate hike from the Fed. This is quite interesting and for me, it has been a crossroads news flow. Because it was Summers who criticized the FED the most for going too slowly last year. Now, the fact that such a statement has come from even the most hawkish name will undoubtedly morale the market at least until the FED meeting. On Friday, the market will get the non-farm payroll report, which is very important for the FED. In this report, a decrease is expected from 223 thousand to 185 thousand in the non-farm employment data for January, while a decrease is expected in average hourly incomes with 4.3% (was 4.6% last month) compared to the previous month. Average hourly earnings are expected at 0.3%, on par with last month. So the wage increase is expected to be mixed. Unemployment is expected to rise from 3.5% to 3.6% this month. In general, the data in the TDI report is expected to point to a partial cooling in the labor market. The fact that the realization is in this direction may bring purchases to the index and precious metals while suppressing the dollar index and bond yields.


Tags: News, US Employment, Dollar

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