A broad spectrum of equities and currencies are still very much in the dark when it comes to their further net momentum. The initial and fair-minded examination of the circumstances may tell us that the borrowing cost agenda, that is basically represented by the collective expectations on the pace of interest rate adjustments, takes centre stage compared to regular economic issues, at least from the market’s point of view.
This may seem to be very absurd but most investors have to take this seriously if they want to be in tune with all the high and low tides of asset price waves.
U.S. Non-Farm Payrolls, which was released last Friday, could hardly be described as positive for the business environment. However, the S&P 500 broad market indicator added more than 2.5% to take it over 3,900 points for the first time since the U.S. Federal Reserve's (Fed) mid-December hawkish declarations, despite the recent and the worst one-time drop in the highly reputable non-manufacturing survey numbers after the pandemic spring of 2020.
The ISM report showed that average business activity plunged from 64.7 points a month ago to just 54.7 points. The holiday Christmas season did not prevent this sharp slowdown in the service industry, which is probably the worst thing. The survey showed that new orders for components lost even more as they sank from 56.0 to 45.2, which formally marked a typical recession sign.
The ISM employment side of the report was also negative even as the recent non-farm payrolls showed that an additional 223,000 jobs were created in December, which put the American labour market in question.
Large fund sharks and other market influencers turned this potentially very sad stream of economic information into inspiring rhetoric with their surprisingly well coordinated and extremely bullish reaction to the news.
Many short sales in indexes and individual stocks have been wiped out, just as the crowd of portfolio investors encouraged. Some room for breathing is forming under a friendly chorus of expert explanations that this landing would be soft, and even if it turns into a hard landing later, then the economy's weakness and sensitivity would only save more businesses from the crossfire from central banks, which allegedly may resist the strong temptation to raise their interest rates faster.
Both the Fed and the European Central Bank (ECB) literally proclaimed their intentions towards an irreconcilable struggle with wage growth in December, which will inevitably hit demand and corporate incomes.
So far none of the officials have renounced their plans and they are unlikely to do so, especially since the release of a rather tight report from the U.S. labour segment and the news of an increased core consumer price index in Europe as it managed to grow from 5.0% to 5.2% by the first Friday of January, are two more red flags to anger the hawks and then harm the market bulls.
Esperio analysts underline that inflationary pressure remains stubborn, although oil prices have fallen and gas spot prices in Europe are five times lower than last year's peak values due to the warm winter. Only the blind can ignore the actual price pressure's postponed influence.
This bomb hasn't exploded yet. Will some fuel price relief and hopes that central banks may show some kind of mercy outweigh the falling economy? It looks more like another act in the theatre bizarre of the strange and episodically illogical market, which was trying to substitute the bullish wishes and hopes for a cool reality, which investors have already observed more than once during 2022.
Yet, a bearish sentiment soon took over after each temporary uptick inspiration.
Alex Boltyan, senior analyst of Esperio company
