Stocks Extend Losses After Rate Path Worries Resurface

Barry Adams
19 Jan, 2023
New York City

Stocks traded lower for the second day in a row after the latest jobs data supported Fed's aggressive rate hike stance. 

Overall jobs market remains healthy and conditions are tight for finding new staff for large and small companies, despite large layoffs announced from leading tech companies. 

The latest weekly jobless claims data confirmed the tight labor market conditions, but higher demand for labor services is still not bringing more people to the labor market because wages are lagging inflation and most service jobs are near the low end of the pay scale. 

Higher inflation may force people back into the labor market, but for now older workers are staying away from rejoining the labor force. 

 

S&P 500 and Nasdaq Extend Weekly Losses 

Benchmark indexes traded down and investors focused on rate path and terminal rates after the latest economic data sent mixed signals. 

Low jobless claims showed tight labor market conditions but weakening housing starts and completions also signaled difficult market conditions for home buyers and builders.  

The S&P 500 index fell 0.9% to 3,895.72 and the Nasdaq Composite index dropped 1.1% to 10,837.77. 

 

Crude Oil Hovered Near December High 

Energy investors bid up crude oil prices on the hopes that China's reopening will lift demand. 

Reports from the International Energy Association controlled by western nations and OPEC controlled by oil producers in the Middle East indicated that demand for oil is expected to rise at least 2% amid shrinking supply from Russia in international markets. 

Crude oil rose 39 cents to $79.87 and natural gas edged up 2 cents to $3.33 a thermal unit. 

 

Treasury Yields Trend Lower 

U.S. Treasury yields retained downward bias on the hopes that the recent inflation-cooling data is likely to slow down the future rate hikes. 

The yield on 2-year Treasury notes edged higher to 4.22%, 10-year Treasury notes to 3.40% and 30-year Treasury bonds to 3.58%. 

 

U.S. Stock Movers 

KeyCorp declined 4.7% to $16.41 after the regional bank reported a sharp fall in earnings on stable revenue in its latest quarter. 

KeyCorp said revenue in December quarter fell 2.5% to $1.89 billion and net income dropped 41% to $356 million or diluted earnings per share fell to 38 cents from 64 cents a year ago.

Charles Schwab dropped 6.9% to $75.73 after the financial services provider reported quarterly results in-line with expectations. 

Stock was under pressure after negative comments and double-downgrade from Bank of America on the worries that the rising interest rate environment is a double-edged sword for the online broker. 

Charles Schwab Corp said fourth quarter revenue increased 17% to $5.5 billion and net income rose 25% to $1.96 billion and diluted earnings per share increased to 97 cents from 76 cents a year ago.

 

Building Permits Declined in December and In 2022 

Home building permits in December declined 1.6% to 1.33 million annual rate and fell 29.9% from a year ago, the U.S. Census Bureau reported Thursday. 

Housing starts fell 1.4% from November to 1.38 million and plunged 21.8% from a year ago after mortgage rates surged to 15-year high and home prices stayed elevated across the nation. 

In 2022, U.S. building permits for private residential construction fell 5% from a year ago to 1.65 million, starts declined 3% to 1.55 million and completions dropped 3.8% to 1.39 million.

 

Weekly Jobless Claims Show Tight Labor Market Conditions 

Initial claims for jobless benefits declined 15,000 to 190,000 last week and the four-week moving average fell 6,500 to 206,000, the U.S. Department of Labor reported Thursday. 

On an unadjusted basis for seasonal factors, the claims declined 53,582 to 285,575 largely on the account of holiday calendar and other seasonal factors. 

 

European Markets 

European markets fell more than 1% after six-days of gains after hawkish comments from the central bankers dented market sentiment. 

European Central Bank President Lagarde reiterated the central bank's commitment in lowering rates to 2% "in a timely manner" at a gathering of business executives in Davos, Switzerland.  

European policymaker and Dutch central bank governor Klaas Knot also reiterated ECB's commitment in raising rates in 50 basis points increment and keeping the hawkish stance intact. 

Tough talks from two central bankers shifted investors attention from economic growth to the implications of rising rates on the region's economy.   

The DAX index declined 1.4% to 14,962.49, the CAC-40 index fell 1.6% to 6,967.94 and the FTSE 100 index declined 0.9% to 6,967.94. 

The euro traded near $1.078, the British pound edged higher to $1.23 and the Swiss franc edged lower to 91.63 U.S. cents. 

The yield on 10-year German Bunds inched lower to 2.04%, French bonds to 2.46% UK Gilts to 3.30% and Italian bonds to 3.77%. 

Brent crude oil price edged higher 70 cents to $85.71 a barrel and the Dutch TTF natural gas futures contract price for immediate month delivery declined 4% to 59.08 per MWh. 

 

Japan Reports Record Trade Deficit 

Asian markets diverged amid the weakening global sentiment and reacted to local news. 

Japan's trade deficit widened in December on higher energy and raw materials prices and weaker yen, the Finance Ministry said in a report released Thursday. 

In full-year 2022 international trade deficit soared to ¥19.97 trillion or $155 billion, surpassing the previous high of  ¥12.82 trillion in 2014. 

The annual deficit was the largest since record keeping began in 1979 and weaker yen played a crucial role in widening the deficit. 

In December, imports soared 39.2% to a record ¥118.16 trillion and exports jumped 18.2% to record ¥98.19 trillion.

Japan recorded a trade deficit for the 17th month in a row in December and posted a second annual deficit in a row in 2022. 

Stocks in Japan were under pressure ahead of the inflation report on Friday. Automakers led the losers with Toyota Motor, Honda Motor and Mitsubishi Motor falling between 2% and 4.5%. 

J Front Retailing jumped 3% after inbound tourists in Japan surged in 2022. 

 

Japan's Tourists Arrivals Surge In 2022 

Total international arrivals in 2022 soared more than 15-fold from a year ago to 3.83 million, the Japan National Tourism Organization reported Thursday. 

Tax-free sales increased to ¥17.5 billion in November and jumped five-fold from the previous year, the Japan Department Stores Association said on Wednesday. 

The Nikkei 225 average fell 1.4% to 26,405.23 and the yen weakened to 128.30 against the U.S. dollar. 

 

China Stocks Lack Momentum 

Stocks in China closed mixed and investors took a cautious view in the absence of domestic economic or corporate news.  

The Shanghai Composite index increased 0.5% to  3,240.28 and the Hang Seng Index declined 0.1% to 21,650.98. 

 

India's Domestic Air Traffic Jumped In 2022

Stocks in Mumbai rested after two-days of advance and investors weighed the prospect of U.S. recession against the weakening of oil price in international trading and the dollar edged lower. 

Domestic passenger air traffic surged nearly 47% to 12.3 crore or 123 million in full-year 2022 from 8.4 crore or 84 million in 2021, the aviation regulator DGCA said in a statement today.

The Sensex index decreased 0.3% or 187.31 to 60,858.43 and the Nifty index fell 0.3% or 57.50 to 18,107.85. 

Adani Enterprises fell as much as 4% after the company set floor price of ₹3,112 a share with a 10% discount for retail investors for its $2.5 billion secondary offering. 

Coal India advanced 2% after the coal ministry set an annual production target of one billion tons in the next financial year. 

Hindustan Unilever said December quarter revenue increased 16.4% to ₹15,707 crore and net income rose 7.9% to ₹2,481 crore.