US EARLY MORNING: US index futures are lower as economic data continues to soften while central bankers continue to sound hawkish; more key data and central bank speakers ahead

SNAPSHOT: US equity futures are slightly below the neutral line, Treasury yields are lower by 2-3bps, the Dollar Index is a little lower, while crude benchmarks are in the red. The risk-off tone is being underpinned by questions over the soft-landing narrative as activity data continues to come in on the soft side and central bankers continue to talk a hawkish game.

GROWTH CONCERNS: After relinquishing the 4,000 level on Wednesday, the E-Mini S&P 500 is currently trading around unchanged levels, sub-3,950; other US equity futures are similarly little changed. Nascent hopes that the US economy can achieve a soft landing have been shaken by this week’s soft retail sales data, which missed expectations in December’s holiday spending season (analysts were expecting these to be resilient, but start inching down in the New Year as consumers retrench in the face of economic uncertainty and potential recession), as well as the soft industrial and manufacturing production data. These weak data points chime with the recent ISM services and manufacturing data, where the headlines for both are in contraction, and the forward-looking new orders measures are also in contraction, signalling challenging growth conditions ahead. And it appears that the January ISM data, out early February, will take a similar shape, after the Empire Manufacturing survey this week collapsed; today’s Philly Fed manufacturing report will help develop these expectations. And in the face of all of these proxies which suggest that a growth slump is on the cards for 2023, and it may not be as soft as many hope, central bank rhetoric this week continues to push the hawkish line, with Fed policymakers seemingly continuing to signal interest rate hikes to above 5.00%+ – this is more hawkish than market expectations, which sees the peak at 4.75-5.00%. This hawkishness is not just confined to the US either – the hawks on the European Central Bank have been aggressively pushing back on dovish reports this week that suggested the central bank could downshift the pace of its rate hikes in the months ahead. And amid the increasing growth fears, Morgan Stanley’s celebrity strategist Michael Wilson reiterated his bearish thesis for stocks, arguing that this year’s rally has been led by low quality and heavily shorted stocks, and noting the strong move into cyclical stocks relative to defensive ones, which has fooled investors into thinking that they are missing out on alpha opportunities. “Truth be told, it has been a powerful shift, but we also recognise bear markets have a way of fooling everyone before they’re done,” Wilson told CNBC, “we’re not biting on this particular head fake/bear market rally because our work and process is so convincingly bearish, and we trust it.” Wilson is given a lot of attention after he correctly called the downside in stocks post-pandemic; he has recently been arguing that the looming corporate earnings recession could be similar to that seen in 2008-09, and that could trigger a stock market sell-off where the S&P 500 could potentially fall to as low at 3,000. So long as data continues to come in soft, and central bankers continue to sound the hawkish siren, Wilson’s celebrity status may endure.

DAY AHEAD: The ECB’s meeting minutes (primer here) will be scoured for clues as to whether officials are open to downshifting the pace of rate hikes from March, after recent dovish reporting suggested that they could – this dovish reporting has seen push back from hawks, however. ECB President Lagarde is due to deliver remarks from Davos, while its markets chief Schnabel will also be speaking today. The US Day will have speeches from the influential Fed Vice Chair Brainard, while the FOMC’s Vice Chair Williams may also give remarks (there was some reporting on Wednesday that Fed Chair Powell has COVID; in the event he cannot participate at the February 1st FOMC, Williams will fill-in for him). On the US data slate, weekly jobless claims data will coincide with the survey period for the January jobs report. The Philly Fed’s regional manufacturing gauge will be eyed in wake of the collapse in the Empire Fed survey earlier in the week – these surveys will help build expectations for the ISM data, due early February (both ISM manufacturing and services headlines, and new orders, are currently in contraction). Elsewhere, the DoE will release weekly energy inventory data; API data showed crude stocks building 7.6mln (exp. -0.6mln), Cushing stocks building 3.7mln, gasoline built 2.8mln (exp. +2.5mln), while distillates drew down 1.8mln (exp. +0.1mln), according to Citi. Our full Day Ahead schedule can be accessed here. Today’s US corporate earnings slate features updates from NFLX, PG, and TFC; expectations can be accessed here.









19 Jan 2023 - 09:20- Research Sheet- Source: Newsquawk

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