Caught Between Recession and Inflation Worries, Investors Stay Undecided

Barry Adams
08 Mar, 2023
New York City

Major averages closed mixed after strong additions in private payrolls reinforced the concern of larger rate hikes. 

Benchmark indexes bounced around the flatline as investors weighed the latest hawkish comments from the Fed chairman Powell and reacted to corporate earnings news. 

Despite multiple rate hikes the U.S. economy is standing strong and only higher-for-longer rates may cool inflation but also increase risks of wider economic slowdown.  

U.S. Treasury yields hovered near 16-year highs as investors mulled faster rate hikes and higher peak rates in the month ahead. 

Private payrolls expanded at a faster pace in February, suggesting tight labor market conditions to persist despite multiple rate hikes over the last twelve months. 

What is good news on the Main Street is bad news on Wall Street as investors fear that rates may have to go further in the restrictive territory before inflation cools, pushing the economy towards a faster slowdown. 

The closely watched JOLT survey from the Labor Department showed there are still two job openings for every worker and investors look ahead to Friday's non-farm payrolls data.  

Employment report tracking payrolls across all sectors of the economy are scheduled to be released on Friday by the U.S. Labor Department and investors are anticipating net job gains of closer to 300,000 and jobless rate of 3.4%. 

 

February Private Payrolls Growth Accelerated 

Private sector net job addition accelerated in February, according to the latest monthly report released by the payrolls processing company ADP. 

 U.S. private payrolls increased by 242,000 in February, higher than the revised 119,000 increase in January. 

The February's gains were driven by 190,000 additions in the service sector and 52,000 increase in the manufacturing sector. 

Overall wage gains decelerated to 7.2%.  

 

U.S. Trade Deficit Edged Higher In January 

The U.S. trade deficit in goods and services increased slightly in January after exports rose faster than imports, the Bureau of Economic Analysis reported Wednesday. 

Exports increased 3.4% and soared 13.3% to $257.5 billion.  

Imports rose 3.0% from the previous month and jumped 3.5% to $325.7 billion. 

Overall trade deficit for goods and services increased 1.6% from the previous month but fell 21.9% from the previous year to $68.3 billion.  

 

Indexes & Yields 

The S&P 500 index increased 0.14% to 3,992.01  and the Nasdaq Composite index inched higher to 0.4% to 11,576.01. 

The yield on 2-year Treasury notes hovered near 5.07%, 10-year Treasury notes inched lower to 3.98% and 30-year Treasury bonds traded around 3.89%. 

Crude oil prices declined $1.21 to $76.35 a barrel and natural gas prices eased 8 cents to $2.59 a thermal unit. 

 

U.S. Stock Movers 

Occidental Petroleum Corporation increased 1.4% to $61.70 after a regulatory filing showed that the Warren Buffett controlled Berkshire Hathaway increased its stake in the company by purchasing 5.8 million additional shares last week. 

Crowdstrike Holdings Inc added 1.3% to $126.57 after the cybersecurity company reported better-than-expected quarterly results. Revenue in the fourth quarter increased to $637 million and earnings per share rose to 47 cents. 

Stitch Fix Inc dropped 13.5% to $4.31 after the online fashion platform reported wider-than-expected loss. 

Stitch Fix Inc said revenue in the fiscal second quarter ended on January 28 declined 20% to $412.1 million and net loss expanded to $65.6 million from $30.9 million and diluted loss per share rose to 58 cents from 28 cents a year ago. 

BlackBerry Ltd increased 4.2% to $3.65 after the cybersecurity company reported preliminary quarterly results. 

BlackBerry Limited said preliminary revenue in the fourth quarter is expected to be $151 million, including $107 million in cybersecurity billings. 

 

European Markets Look Beyond Central Bankers' Comments 

European markets lacked direction after investors weighed the latest comments from central bankers and economic data. 

Market indexes opened lower following the comments from the Federal Reserve Chairman Jerome Powell suggested larger rate hikes may be necessary to cool inflation. 

Closer to home, the European Central Bank next week is set to raise rates for the sixth time in a row to cool sky-high inflation driven by high energy prices. 

Investors are anticipating a rate hike of 50 basis points. 

On Monday, Governor of Austria's central bank Robert Holzmann said that the rates should be revised higher by the same amount at the next four meetings in a row. 

Despite the previous five rate hikes, rates are still not restrictive enough in cooling inflation. 

The ECB's main deposit rate is 2.5% and consumer price in the Euro Area is hovering around 8.5%. 

 

Germany's Industrial production Expanded In January

Germany's industrial production unexpectedly rose 3.5% in January and reversed the 2.4% decline in December, the Federal Statistics Office or Destatis reported Wednesday. 

Industrial production rose after intermediate goods demand surged 6.9% driven by a rise in demand for chemical and electronic equipment, the report showed. 

On other hand, production of consumer goods fell 1.8% and capital goods output decreased 0.6%.

On an annual basis, the industrial production declined 1.6% after falling 3.3% in December. 

 

Germany's Retail Sales Declined 

Retail sales in January fell 0.3% after adjusting for inflation from the previous month, the latest data from Destatis showed. 

January's retail turnover declined 6.9% from the previous year after higher prices and elimination of energy subsidies forced consumers to retrench. 

 

Euro Area Economy Stagnated In Q4 

Economy in the Euro Area stagnated after the latest downward revision in the fourth quarter, Eurostat said in a report today. 

GDP expanded 0.4% in the fourth quarter, matching the rate in the third quarter. 

Positive contributions from government spending and international trade were offset by the decline in consumer spending and investments. 

On an annual basis, the fourth quarter's GDP expansion was downwardly revised to 1.8% from the previous estimate of 1.9% and slower than 2.4% in the third quarter. 

The Euro Area's economy expanded 3.5% in 2022 after rising 5.3% in 2021.  

 

Indexes & Yields 

The DAX index increased 0.5% to 15,631.87, the CAC-40 index fell 0.2% to 7,324.76 and the FTSE 100 index closed up 0.1% to 7,929.92. 

The yield on 10-year German Bunds decreased to 2.65%, French bonds inched lower to 3.14%, UK gilts to 3.78% and Italian bonds to 4.43%. 

The euro edged lower to $1.05, the British pound eased to $1.183 and the Swiss franc closed at 94.12 cents. 

Brent crude oil fell 50 cents to $82.76 a barrel and the Dutch TTF natural gas eased 15 cents to $2.53 a thermal unit.  

 

Europe Stock Movers 

 Adidas AG fell as much as 3% but recovered to close higher 2.2% to €147.50 after the athletic footwear maker reported disappointing 2022 sales. 

Net sales in 2022 increased 6% to $23.8 billion but operating profit fell 66% to $705.4 million. Sales in the fourth quarter struggled after the company severed its relationship with the rapper Kanye West. 

The ending of relationship with Ye cost the company $633 million in fourth-quarter sales.   

Continental AG increased 7.6% to €78.26 after the automotive tires maker estimated earnings and margins to improve in 2023. 

Symrise AG increased €96.14 after the flavor and fragrance maker forecasted core 2023 profit below expectations of some investors. 

Thales SA declined 3.6% to €127.85 despite the French defense group reporting higher sales and earnings for 2022. 

Restaurant Group PLC plunged 15.3% to 38.36 pence after the company reported a wider loss in the financial year 2022. 

Admiral Group plc fell 4.1% to 2,003.0 pence after the UK-based financial services company proposed a lower dividend following the sharp decline in profit. 

Legal & General Group plc fell 1.6% to 261.61 pence despite the UK-financial services company reporting a solid increase in earnings in 2022. 

Hill & Smith PLC decreased 6.1% to 1,327.67 pence despite the infrastructure and transportation solutions provider reporting nearly two-third increase in pre-tax earnings in 2022.