Breaking News
Investing Pro 0
🚨 Our Pro Data Reveals the True Winner of Earnings Season Access Data

Week Ahead: Markets Hold Breath for Employment and Fedspeak

By Investing.com (Pinchas Cohen/Investing.com)Market OverviewNov 27, 2022 15:11
uk.investing.com/analysis/week-ahead-markets-hold-breath-for-employment-and-fedspeak-200548482
Week Ahead: Markets Hold Breath for Employment and Fedspeak
By Investing.com (Pinchas Cohen/Investing.com)   |  Nov 27, 2022 15:11
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
 
XAU/USD
+0.44%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
US500
+1.29%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
DJI
+0.78%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
DX
-0.25%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
Gold
+0.52%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
DE2YT...
+2.89%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
  • Fed is the only game in town
  • Employment data especially significant at this time
  • Bad economic data should cause a rally

While all four major U.S. indices advanced last week, excepting mega caps, they failed to make new highs. What are investors waiting for?

The week will provide economic data, including for inflation (via the PCE, the Fed's preferred inflation gauge), manufacturing (Chicago PMI, ISM Manufacturing) and spending (consumer, construction). But the most impactful report could be that of nonfarm payrolls. Given that the data matters in the context of monetary policy, a series of Fed speakers could potentially move markets. Chief among them is Federal Reserve Chairman Jerome Powell, who is set to deliver his view of "the economic outlook and the labor market" at the Brookings Institution on Wednesday.

As the event's title spells out, the Fed boss is focused on data, which has been prompting him to keep hiking rates aggressively: For the fourth time in a row, on Nov. 2 the Fed raised by a historically high 0.75%, taking rates to their highest level since 2008. The Fed has faced criticism for seemingly wanting Americans to lose their jobs, but they are not magicians.

When there are almost two job openings for each seeker, it is an employee's market, with full employment and the highest wages. When people have job security and expect it to stay so, they increase demand for products and services, which inevitably exacerbates inflation. Accordingly, if the Fed is to remain consistent, it will keep raising rates until the jobs market declines. Consensus sees 200,000 new jobs in November, easing from 261,000 in October.

According to FOMC minutes from the Nov. 1-2 meeting, published Wednesday, a "substantial majority" of members think it would "likely soon be appropriate" to temper the sharp increases. A change in employment data, due out this Friday, may reinforce this desire or force the Fed to keep accelerating rates. As of now, analysts predict "just" a half-percentage-point increase at the next Fed meeting on Dec. 13-14.

I am skeptical regarding Powell's reiterations that he still believes a soft landing is possible. I foresee a hard landing, because the U.S. economy has virtually not expanded, even though we have yet to see the rate hikes’ full impact.

And while growth stalls, the cost of living inflated by 6.2% in September YoY, according to the U.S. PCE, and by 5.1% even after removing volatile energy and food prices. A technical recession was already triggered when GDP fell in the first and second quarters. In the third quarter, GDP rose 2.6%, primarily because of a spike in exports (and this is not necessarily representative).

Since quantitative easing has replaced a natural economy operating on participants' supply and demand, we have seen investors reacting favorably to poor economic data and selling off when the economy proves resilient. I expect that backward philosophy regarding our artificial economy is even stronger now, as the Fed is the only game in town.

While all four U.S. gauges advanced, utilities outperformed and technology lagged, demonstrating investor caution. We can clearly see that on the chart.

Source: Investing.com

While I included the S&P 500 chart, the following is true for all but the Dow: while the weekly price climbed, it found resistance near last week's highs. The Dow made a new high in the short-term uptrend, confirming investors are looking not for growth but for preservation.

In the S&P 500, we also see a bearish pattern developing in the short term as it possibly climaxes ahead of the falling channel top, demarcating the medium-term downtrend.

The short-term rally is characterized by a faster ascent of lows, while highs are not keeping up, forming a rising wedge. This pattern is bearish, completed with a downside breakout, as bulls grow tired of the lack of progress and exit positions.

German yield curve: 10-year vs. 2-year bonds
German yield curve: 10-year vs. 2-year bonds

Source: Investing.com

The German yield curve (2-year vs. 10-year bonds) fell to its steepest inversion in three decades, indicating a recession, joining the inverted U.S. yield curve.

The dollar has declined since its biggest two-day selloff on Nov. 10-11, when consumer inflation (per the CPI) rose 7.7% YoY in October, its slowest rate since January and lower than 8% estimates. Last week, the dollar sank further, completing a bearish pattern, after Fed minutes revealed a growing consensus to ease its aggressive path to higher rates.

Dollar Index Daily Chart
Dollar Index Daily Chart

Source: Investing.com

The dollar formed a rising flag, bearish after the initial 5% plunge within four sessions, whose implied target will put to the test the 103 support of the highs since Jan 2017 (red line).

Gold enjoyed the weakening dollar when its yield role lessened.

Gold Daily Chart
Gold Daily Chart

Source: Investing.com

Gold completed a return move, whose support confirmed the double bottom's neckline.

Bitcoin Daily Chart
Bitcoin Daily Chart

Source: Investing.com

Bitcoin may be forming a descending triangle, a pattern of a range that projects bears overcoming bulls. The downside breakout will imply a $2,000 drop from the point of breakout to $13,600.

As for oil, strictly speaking, last Monday's lower low (red circle) confirmed the continued downtrend.

Oil Daily Chart
Oil Daily Chart

Source: Investing.com

However, that day developed a potent bullish hammer. Therefore, wait for a fall below $75 for confirmation.

Week Ahead: Markets Hold Breath for Employment and Fedspeak
 

Related Articles

Alfonso Peccatiello
Can You Smell the FOMO? By Alfonso Peccatiello - Feb 07, 2023

Last week, FOMO (Fear Of Missing Out) became the prevailing market narrative. As data seemed to further validate the soft landing narrative and central bankers became...

Lance Roberts
Bull Now, Bear Later? By Lance Roberts - Feb 07, 2023

Last week, we discussed why the more bullish technical formations were at odds with the many recession forecasts. Not surprisingly, that article generated substantial pushback from...

Week Ahead: Markets Hold Breath for Employment and Fedspeak

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (1)
Martin Haynes
Martin Haynes Nov 28, 2022 7:47
Saved. See Saved Items.
This comment has already been saved in your Saved Items
👍
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email