Knock three times: JOLTS, Chicago PMI, mortgage demand
Main U.S. indexes red: S&P 500 off most, down ~0.9%
Cons disc weakest S&P sector; staples sole gainer
KBW regional banking index down ~4%
Euro STOXX 600 index off ~1%
Dollar, gold up; crude, bitcoin down
U.S. 10-Year Treasury yield falls to ~3.66%
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KNOCK THREE TIMES: JOLTS, CHICAGO PMI, MORTGAGE DEMAND (1120 EDT/1520 GMT)
They say bad things come in threes.
That certainly was the case on Wednesday, with a trio of indicators offering market participants news from the labor market, factory activity and the housing sector.
First, the number of vacant job openings unexpectedly rose by 3.7% in April to 10.103 million, well north of the 9.375 consensus.
The Labor Department's Job Openings and Labor Turnover Survey (JOLTS) USJOLT=ECI, which gauges labor market churn, also showed new hires picked up a bit while firings and quits both inched a bit lower.
Taken together, the report paints a picture of a still-tight labor market, with decelerating churn.
Combined with an unemployment rate hovering at a half-century low, and corroborating recent surveys such as NFIB Small Business Optimism, lack of available workers continue to put upward pressure on wages, a major inflationary driver.
Even so, the data series does point to some signs of slack appearing here and there.
"The best measure of labor market tightness in the report, the quits rate, fell to 2.4%—its lowest rate since February 2021, almost matching its pre-pandemic rate of 2.3%," writes Julia Pollak, chief economist at ZipRecruiter. "It suggests that the labor market is slackening, despite the reported increase in job openings, and that workers are increasingly sheltering in place in their jobs as better alternatives become less available."
Next, factory activity in the midwest contracted sharply this month.
The Chicago purchasing managers' index (PMI), courtesy of MNI indicators plunged by 8.2 points to land at 40.4.
A PMI number south of 50 indicates monthly contraction, and a print below 43 is widely considered recessionary.
The index has been in contraction territory for nine straight months.
"The outlook for manufacturing is uncertain; Softer demand for goods and higher borrowing costs are constraints on factory output," says Rubeela Farooqi, chief U.S. economist at High Frequency Economics. "And a further tightening in credit conditions that reduces access to credit could be an additional hurdle going forward."
On Thursday, analysts expect the Institute for Supply Management's (ISM) PMI to show the manufacturing sector remains in contraction nationwide, delivering a reading of 47 - essentially a repeat of the 47.1 April print.
And finally, the cost of financing home loans jumped last week, and would-be borrowers gave the move a thumbs down, according to the Mortgage Bankers Association (MBA)
The average 30-year fixed contract rate USMG=ECI jumped 22 basis points to 6.91%, the highest level since November.
The surge prompted a 2.5% drop in applications for loans to purchase homes USMGPI=ECI and a 6.9% plunge in refi demand USMGR=ECI.
"Inflation is still running too high, and recent economic data is beginning to convince investors that the Federal Reserve will not be cutting rates anytime soon," says Mike Fratantoni, MBA's chief economist. "While refinance demand is almost entirely driven by the level of rates, purchase volume continues to be constrained by the lack of homes on the market."
Below, we see overall mortgage demand is down about 36% from the same week last year:
Taken together, financial markets are increasingly betting that the Federal Reserve isn't quite finished tightening the screws.
At last glance, CME's FedWatch tool shows a 62.9% likelihood of yet another 25 basis point rate hike next month, up from 36.4% a week ago.
U.S. STOCKS FEEL THE PRESSURE AHEAD OF PIVOTAL VOTE (1015 EDT/1415 GMT)
Wall Street's main indexes are lower early on Wednesday as a deal to raise the nation's debt ceiling heads for a pivotal vote by lawmakers, while another round of earnings highlighted the pinch of higher prices being felt by corporate America.
On the data front, May Chicago PMI came in below the estimate, while April JOLTS job openings came in above the Reuters Poll.
Additionally, markets are also contending with more hawkish Fed speak from Cleveland Fed President Loretta Mester, who sees no "compelling" reason to wait to implement another interest rate hike.
The main indexes are lower, and a majority of S&P 500 sectors are red. Consumer discretionary .SPLRCD is taking the biggest hit, while just staples .SPLRCS are slightly higher.
Banks .SPXBK, .KRX are among weaker groups.
Of note, it's been a rough May for the energy sector .SPNY. The group is down more than 10% MTD, and on pace for its biggest monthly slide since June of last year. On the other hand, tech .SPLRCT is up about 10% in May.
With this, growth .IGX is tracking its best month relative to value .IVX since July of last year.
Here is a snapshot of where markets stood around 1015 EDT:
S&P 500 INDEX: STILL WEDDED TO 4,200 AREA (0900 EDT/1300 GMT)
The S&P 500 index .SPX tried to pull away from the 4,200 area to the upside on Tuesday. However, after hitting an early high of 4,231.10, strength faded and the benchmark index ended up by just decimals at 4,205.52:
With the push above 4,218.70, the SPX was able to finally fill its August 22 gap. However, after coming to within 1% of a weekly Gann Line, that now provides resistance around 4,275, the index retreated back to a low of 4,192.18. The August 16 high was at 4,325.28.
Tuesday's low was within the 4,203-4,186 support zone, which includes the August 26 Fed Chair Powell Jackson Hole speech high, the 23.6% Fibonacci retracement of the March 2020-January 2022 advance, the 100-week moving average and the February 2 and May 1 highs. The SPX was able to recover slightly above this area at the close.
Additional support is at 4,155 (weekly cloud). The rising 50-day moving average ended Tuesday at about 4,106, and the May 24 low was at 4,103.98.
Thus, with the 4,200 area still sticky, ahead of the debt ceiling deal vote expected later on Wednesday, traders will ultimately be looking for momentum outside of the 4,103-4,325 area to potentially signal the next bigger move for the index.
FOR TUESDAY'S LIVE MARKETS POSTS PRIOR TO 0900 EDT/1300 GMT - CLICK HERE
Job openings and the unemployment rate https://tmsnrt.rs/42vh58t
Chicago PMI https://tmsnrt.rs/3IOdds4
(Terence Gabriel is a Reuters market analyst. The views expressed are his own)</body></html>
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