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U.S. equity index decline: DJI off 1~%
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Financials weakest S&P 500 sector; utilities biggest gainer
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Euro STOXX 600 index down ~0.7%
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Gold, dollar rise; bitcoin dips; crude off ~1%
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U.S. 10-Year Treasury yield falls to ~3.33%
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THE FED-PIRE STRIKES BACK: STAR WARS DAY DATA (1055 EDT/1455 GMT) Investors began May the fourth with a spate of data that offered evidence that the labor market is beginning to turn to the dark side, inline with Darth Powell's dastardly designs.
The number of U.S. workers filing initial paperwork for unemployment checks rose 5.7% last week to 242,000, overshooting consensus by a hair.
The four-week moving average, which irons out weekly volatility, is on the upswing, suggesting some cracks are appearing in the tight labor market, as the Fed's restrictive policy dampens demand and surging layoff announcements - more on that in a bit - begin to make themselves felt, dampening demand.
"We expect claims to hit 275K by the end of this month - the seasonals imply a 260K print next week - and 300K by mid-year," says Ian Shepherdson, chief economist at Pantheon Macroeconomics. "Firms facing much tighter bank credit conditions will have to cut variable costs, of which labor and inventory are the key elements."
But ongoing claims, reported on a one-week lag, unexpectedly dropped 2.1% to 1.805 million. While well above the 1.7 million pre-pandemic level, the drop hints at the notion that laid-off workers are finding replacement gigs.
Speaking of the devil, corporate America announced it would cut its workforce by 66,995 jobs last month, according to executive outplacement firm Challenger, Gray & Christmas (CGC).
While CGC's April planned layoffs report showed 25% monthly drop, the reading was 176% above the year-ago number, and year-to-date job cuts are up 322% from 2022.
So far this year, the tech sector is the layoff king, handing out more pink slips than the next three sectors - retail, financial, healthcare - combined.
But in April, retail led all industries.
"Retailers and Consumer Goods Manufacturers are preparing for a tightening in consumer spending," said Andrew Challenger, senior vice president at CGC, referring to tighter credit due the Fed's policy rate hikes.
Whether spiking layoffs will show up in the Labor Department's April employment report tomorrow remains to be seen.
Analysts expect the jobless rate to tick higher to a still-low 3.6%.
The tireless Labor Department also released its preliminary data for first-quarter labor costs and productivity , both of which blew past analyst expectations, but in opposite directions.
Productivity, or hourly output per worker, dropped by 2.7%, much steeper than the 1.8% anticipated decline. As a result, labor costs surged 6.3%, notably hotter than the 5.5% expected.
"The decline in productivity in Q1 and continued strong growth in unit labor costs is another sign that inflation will prove stickier than markets anticipate," writes Michael Pearce, lead U.S. economist at Oxford Economics. "Even though the Fed signaled yesterday they may be finished raising interest rates, high inflation will delay rate cuts until next year."
And finally, the difference in the value of goods and services imported to the U.S. and domestic goods/services shipped abroad narrowed by 9.1% in March to $64.2 billion, according to the Commerce Department.
The combination of a welcome 2.1% jump in exports and a 0.3% dip in imports was behind the expected move, which was a teensy bit wider than the $63.3 billion expected deficit.
Additionally, the closely watched U.S./China goods trade gap fell to $16.6 billion, the metric's narrowest print since March 2020.
Wall Street was also giving into the dark side of the fourth in morning trading.
All three major U.S. indexes were well into negative territory, with financials suffering the worst of it.
(Stephen Culp)
WALL STREET SLIPS AS CREDIT FEARS MOUNT DESPITE HOPES FOR A PAUSE (1010 EDT/1410 GMT)
Wall Street is trading lower early on Thursday despite the market's belief that the Federal Reserve's monetary tightening is now on "pause," as concerns about the health of regional banks linger and credit conditions spawn more bankruptcies.
Ten of the 11 S&P 500 sectors are lower, led by financials, while real estate is the sole gainer.
The Dow Transports, small caps and semiconductors are all down more than 1%, while regional banks are lower by more than 5%.
However, the FANG index is posting a small rise.
The market in general has viewed the Fed's statement and Chair Powell's comments on Wednesday following the two-day policy meeting as dovish, with futures now pricing in three rate cuts by December.
Goldman Sachs said late Wednesday that if Powell thinks a recession is not necessary to subdue inflation, he will be reluctant to deliver future hikes that he sees materially raising the risk of pushing the economy into a recession.
But tighter credit conditions are still a concern. Until the economic impact of tighter credit conditions resulting from the March banking sector stresses are better understood, taking a breather on rate hikes is warranted, Federated Hermes said.
S&P Global Market Intelligence on Thursday is reporting bankruptcy filings have pushed the year-to-date count to 236, more than double the comparable figure a year ago and higher than any of the prior 12 years.
Larger bankruptcy cases are rising in 2023 alongside a broader increase in filings. Eight companies filed for bankruptcy protection in the first four months of 2023 that listed liabilities over $1 billion, it said.
Apple is due to report its quarterly numbers after the close.
Below is a snapshot of early market prices:
(Herbert Lash)
RETAIL PUNTERS JUST CAN'T RESIST BANK DIP (0921 EDT/1321 GMT)
First Republic Bank's collapse this week has triggered a sharp drop in shares of regional U.S. lenders despite regulatory efforts to call an end to the banking crisis that began with the failures of Silicon Valley Bank and Signature Bank in March.
Retail investors are on a buying spree, with regional banks down 8.9% so far this week.
Despite sitting on about 31% losses on their financials purchases since the beginning of March, retail investors bought the dip again on Wednesday, according to Vanda Research.
Chart by Vanda Research
"On balance, with retail investors buying the dip quite aggressively yesterday it is quite plausible that they constituted exit liquidity for hedge funds," they added.
Big banks like Bank of America, regional banks who are perceived as safer such as Truist Financial Corporation and diversified ETFs like the SPDR S&P Regional Banking ETF drew larger retail inflows on Wednesday, according to Vanda.
Individual investors, nonetheless, sold Western Alliance Bancorp for their fourth straight session despite the U.S. regional bank's efforts to reassure investors that it had not seen unusual deposit outflows following the sale of collapsed lender First Republic Bank to JPMorgan Chase & Co on Monday.
(Bansari Mayur Kamdar)
BRITAIN'S BANKS EMERGE UNSCATHED AS U.S. BANKING TURMOIL RAGES (0904 EDT/1304 GMT)
As the banking sector turmoil in the United States rages on, investors in the UK breathed a sigh of relief as Lloyds on Wednesday wrapped up a better-than-expected earnings season for top British lenders.
While across the Atlantic, a number of U.S. regional bank collapses sparked a deposit flight to larger institutions or to money market funds for higher returns, British lenders seem to be in a much better position, according to analysts.
UK banks did indeed face a small withdrawal of funds amid the U.S. banking crisis, with deposits falling by £18.1 billion in March, but it was not big enough to constitute a bank run, according to Capital Economics.
"The UK’s Big Five are showing no real signs of deposit flight, any unexpected deterioration in their loan books or undue risk-taking," said AJ Bell investment director Russ Mould in a note.
Instead, investors seem to be mildly perturbed by the lenders' cautious guidance, said Mould.
The absence of earnings target upgrades from big UK banks this quarter can be explained by competition among banks, as well as an uncertain path forward for interest rates as well as the economy, according to Mould.
Other big banks in the broader European region have also seen a dip in deposits, with Spain's Santander the only European heavyweight to report a rise.
UK bank shares have also fared much better than those of U.S. banks this year, with the FTSE 350 banking index rising 6.3% so far in 2023 against a 14.8% fall in the S&P 500 banking index The Bank of England is expected to hike interest rates by 25 basis points next week given persistent inflationary pressures.
(Amruta Khandekar)
CRUDE OIL FUTURES: HAMMERING OUT A FLOOR? (0900 EDT/1300 GMT)
Rocked by recession fears, NYMEX crude oil futures have been on the back foot. That said, the futures are attempting to make a stand on Thursday as they test key chart support.
Despite U.S. crude oil inventories falling for a third week in a row and the U.S. Strategic Petroleum Reserve hitting its lowest levels since October 1983, a surprise rise in gasoline stocks on weakened demand, coupled with the Fed's 10th-straight interest rate hike on Wednesday, may have dented sentiment enough to cause a swoon in Thursday's trading.
The futures slid to $63.64, or their lowest level since early December 2021:
With this, futures once again tested support at the 200-week moving average (WMA), which has proven to be a long-term magnet. It now resides around $66.85.
Additionally, the futures flirted with the 38.2% Fibonacci retracement of the April 2020-March 2022 advance, at $65.25, the March 2023 low at $64.12, and a weekly Gann Line that now provide supports around $63.50.
The Dec. 2, 2021 low was at $62.43, and the Aug. 23, 2021 trough was at $61.74. Thus, there is a wealth of support in the mid-to-low $60s that may serve to continue to stem weakness.
The futures have subsequently snapped back to the $69 area, and are forming a daily hammer candle. If this pattern holds through the close, it may signal a bottom and trend reversal.
As stands, in order to add confidence in a turn, traders will want to see Friday's close above $72.31 to form a hammer on a weekly basis.
In any event, if the daily pattern evaporates and support gives way, the 50% retracement of the April 2020-March 2022 advance is at $45.09, so additional downside could be severe.
Meanwhile, the S&P 500 energy sector, which ended at 607.37 on Wednesday, is once again teetering as it breaks its 12-month moving average, which now resides around 632.70.
(Terence Gabriel)
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(Terence Gabriel is a Reuters market analyst. The views expressed are his own)
