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Continental Stocks Falter 

European stocks opened lower on Friday, looking to close the week out barely changed but with US jobs data on tap later likely to drive some volatility. The FTSE 100 dropped around half a percent in early trade, holding above 7,500, the DAX off a similar margin but above 14,400. 

  

Stagflation Already Here? 

US core PCE inflation rose 5% y/y, up 0.2% month-on-month, whilst the US ISM manufacturing index showed it sharpest contraction in two and a half years. Weekly jobless claims at +225k was weaker than expected. All of which tells us what? You cannot read too much into one month, but none of this shouts ‘stagflation is not here’. It says something like ‘stagflation seems to be happening already’ and we should be mindful of what this will mean for equity valuations and earnings going into 2023. 

  

US Bears Continue to Prevail 

US stocks fell a bit yesterday, giving back some of Wednesday’s outsize gains at the end of November following Jay Powell’s speech. I can keep saying that the timing and pace matters far less than the destination of the Fed funds rate, but that’s not going to stop these bear market rallies. Salesforce declined more than 8%, a hit to the Dow. Costco fell over 6% as the retailer posted a slowing in the pace of November sales.  

  

Labour Data Soon, Fed Meet Looms 

US nonfarm payrolls are due up later. Forecast is for +200k jobs, slowing from +261K last month. Wage growth is seen at +0.3% and unemployment rate steady at 3.7%. I don’t think the pace of jobs growth will matter too much for the Fed’s December meeting, but it will offer the usual volatility. Weaker-than-expected can be seen near-term positive for risk...but I think as we head into 2023 it will be clear that bad news is no longer good news for stocks.  

Pressure on USD, JPY stumbles 

Pressure on the dollar ahead of the nonfarms is clear. The bearish flag formation completed with a break to the downside through the 200-day line. If you can recall a note earlier this week, it was indeed too early to call the MACD breach (black circle, failed), and it has moved with its medium-term trend. 

USDJPY testing the 200-day line, could drop below for the first time since Feb ’21. 

Similarly it was too early for SPX (see earlier note) but it could be a head fake to shake out the bears before the move lower, just as we saw in March. 


 

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