Nice and soft, unless it isn't



<html xmlns="http://www.w3.org/1999/xhtml"><head><title>LIVE MARKETS-Nice and soft, unless it isn't</title></head><body>

Main U.S. indexes red: Nasdaq off ~1.1%; banks index positive

Utilities weakest S&P 500 sector; financials now ~flat

Euro STOXX 600 index ends down ~0.3%

Dollar, gold, bitcoin ~flat; crude rallies

U.S. 10-Year Treasury yield ~flat at ~3.47%

Welcome to the home for real-time coverage of markets brought to you by Reuters reporters. You can share your thoughts with us at markets.research@thomsonreuters.com



NICE AND SOFT, UNLESS IT ISN'T (1202 EST/1702 GMT)

While the U.S. market has been embracing the narrative of a soft landing, Lauren Goodwin, economist and portfolio strategist at New York Life Investments, worries that while this has been good news for duration sensitive assets, it may have been a temporary reprieve.

Her concern is that the economy's resilience may not hold. While the Fed may slow its hiking to 25 basis points on Feb 1, she notes that a slowdown is not a pause and even a pause is not a pivot and that high borrowing costs have "only just started to impact the real economy."

While the consumer stayed strong in 2022, Goodwin is less confident about 2023 in part because the meaningful build up of consumer savings, which got consumers through 2022, is fading.

"Consumers running out of savings will be forced to cut spending or borrow at now-higher rates," says the economist who notes that credit card balances are rising and that it will be tougher for companies to pass on higher prices to a weaker consumer. This difficulty in turn would contribute to margin compression during the year.

Then Goodwin pointed to a New York Life Wealth Watch survey which found that 46% of adults reported that they saved less than they had aimed for in 2022.

While the labor market has stayed strong, Goodwin again used that word 'temporary.'

"Historically, the labor market is the last domino to topple as the economy heads towards recession," she writes noting that research suggests nonfarm payrolls typically grow ahead of a recession.

As well as looking at what markets are pricing in, Goodwin recommends considering the level of certainty around what markets are pricing in.

This is because "the confidence interval around economic outcomes this year remains so wide" that she expects a continual shift between ‘soft landing’ and ‘hard landing’ narratives in the next few months.

So it's best to be careful and "focus on durable themes." Goodwin is increasingly constructive on income-generating equity, with a focus on quality value and infrastructure.

"And while the spread opportunity in fixed income has closed in the last few months, the yield opportunity remains compelling in strategies that focus on careful credit analysis," she writes. "We believe balancing income or yield opportunity with resilience against slowing growth will be key."

Meanwhile, while Wall Street's major averages are above their session lows, they were still in the red.

(Sinéad Carew)

*****



NASDAQ COMPOSITE, BREADTH MEASURE, FACE BIG HURDLES (1100 EST/1600 GMT)

The Nasdaq Composite .IXIC ended around 11,334 on Tuesday putting it less than 2% from its descending 200-day moving average (DMA):


The 200-DMA, which ended around 11,540 on Tuesday, should come in just under 11,530 on Wednesday.

Since the IXIC decisively broke below this closely watched long-term moving average in January of last year, it has been unable to score even one daily close back above it. Subsequent near touches throughout 2022 led to renewed selling pressure.

Meanwhile, the Nasdaq daily advance/decline (A/D) line .AD.O is also nearing its descending 200-DMA. The A/D line has failed on its near touches of its 200-DMA since late-July 2021.

Thus, the Composite appears to be near a critical juncture. Bulls will want to not only see the index forge above its 200-DMA, but the A/D line as well, in order to put the breadth measure in gear with the IXIC to the upside.

Failures at the 200-DMAs can suggest risk that the prevailing bear trend is resuming.

(Terence Gabriel)

*****



RUMORS OF HOUSING MARKET'S DEMISE EXAGGERATED - MBA (1047 EST/1547 GMT)

In a glimmer of hope for the embattled housing sector, demand for home loans jumped by 7% last week.

Data from the Mortgage Bankers Association (MBA) showed the average 30-year fixed contract rate USMG=ECI shaved off a mere 3 basis points to 6.20% - the third straight weekly decline - which prompted a 3.4% increase in applications for loans to purchase homes USMGPI=ECI and a robust 14.6% jump in refi demand USMGR=ECI.

This builds on the prior week's whopping 27.9% surge in overall mortgage applications.

"(This is) good news for potential homebuyers looking ahead to the spring homebuying season," said Joel Kan, deputy chief economist at MBA. "Homebuying activity remains tepid, but if rates continue to fall and home prices cool further, we expect to see potential buyers come back into the market."

"Many have been waiting for affordability challenges to subside."

For context, while the benchmark mortgage rate has deflated 96 basis points from its 7.16% October apex, it remains 248 bps above where it sat a year ago, and overall mortgage demand has plummeted 53.7% over the last twelve months.

The housing sector's star has dimmed considerably since the halcyon days of the pandemic-driven demand boom, with home price growth and rising interest rates pricing many potential home buyers out of the market.

But as Powell & Co continue tossing buckets of cold water on the economy to tame decades-hot inflation, home price growth has begun to cool and rates are following U.S. Treasury yields lower, making the prospect of monthly mortgage payments increasingly affordable.



While purchase applications are considered one of the more forward-looking housing indicators, the stock market provides a more reliable crystal ball, indicating where investors believe the sector will be six months to a year down the road.

With that in mind, while the Philadelphia SE Housing index .HGX and the S&P 1500 Homebuilding index .SPCOMHOME have underperformed the broader market for much of the last twelve months, that relationship began to reverse itself around the time investors rang in the new year:



Wall Street opened sharply lower as risk appetite was curbed by a string of corporate earnings which ran the gamut from downbeat to dire.

After Microsoft MSFT.O, which reported results Tuesday night, the triple-A of Apple AAPL.O, Amazon.com AMZN.O and Alphabet GOOGL.O were the next heaviest drags on the S&P 500.


(Stephen Culp)

*****



U.S. STOCKS RED AFTER MICROSOFT'S WHITE FLAG (1002 EST/1502 GMT)

Wall Street's main indexes are lower early on Wednesday as a number of downbeat quarterly updates, including one from Microsoft, added to fears of a recession.

Microsoft MSFT.O warned that growth in its lucrative cloud business could stall, while its PC unit continues to struggle.

Mike O'Rourke, chief market strategist at JonesTrading, noted late Tuesday that Microsoft has been "the key laggard among the megacaps in 2023." Indeed, with its early slide of more than 4%, the stock is now negative for the year-to-date.

Not surprisingly, tech .SPLRCT is the weakest S&P 500 .SPX sector in the early going, with MSFT also the biggest individual stock drag on the overall benchmark index.

Here is where markets stood about 30 minutes into the trading day:



(Terence Gabriel)

*****



THE RETAILERS THAT STAND TO GAIN IF BED BATH & BEYOND GOES BUST (0920 EST/1420 GMT)

Home goods retailer Wayfair W.N, off-price chain TJX TJX.N and Target TGT.N could be among the biggest winners in terms of sales if Bed Bath & Beyond collapses, according to analysts at Telsey Advisory Group (TAG).

Bed Bath & Beyond, a company that has seen demand drop off in recent years after its merchandising strategy shift to sell more store-branded products flopped, raised doubts about its ability to continue as a going concern earlier this month and is exploring a range of options including declaring bankruptcy.

While a complete liquidation of its business is no where near a sure thing, the retailer has been closing stores and cutting job to stem its cash burn.

In January, the company disclosed the locations of 118 store closures it has made in its current fiscal year, about 63% of which are within one mile of a Target, according to the Telsey analysts.

A little over half the stores have a Walmart WMT.N within a mile.

The Telsey Group estimates those closures could add 20-40 basis points (bps) in sales for Target, Wayfair, TJX, Burlington Stores BURL.N and Ross Stores ROST.O, and 5 bps for Amazon AMZN.O and Walmart WMT.N.

What if Bed Bath & Beyond liquidates entirely?

Then the annual sales benefit could be about 200 bps for Wayfair, 150 bps for Burlington, Ross, and TJX, and 100 bps for Target, TAG estimates.

That translates to billions in sales up for grabs. Analysts on average expect Bed Bath & Beyond to report full year revenue of $4.81 billion in its fiscal year 2023, according to Refinitiv data.

As for who could be interested in taking over Bed Bath & Beyond's store locations if it does go under- TAG thinks that would be the off-price chains, grocers, and department stores, including Macy's M.N.


(Uday Sampath Kumar)

*****



NASDAQ COMPOSITE, BREADTH MEASURE, FACE BIG HURDLES (0900 EST/1400 GMT)

The Nasdaq Composite .IXIC ended around 11,334 on Tuesday putting it less than 2% from its descending 200-day moving average (DMA):



The 200-DMA, which ended around 11,540 on Tuesday, should come in just under 11,530 on Wednesday.

Since the IXIC decisively broke below this closely watched long-term moving average in January of last year, it has been unable to score even one daily close back above it. Subsequent near touches throughout 2022 led to renewed selling pressure.

Meanwhile, the Nasdaq daily advance/decline (A/D) line .AD.O is also nearing its descending 200-DMA. The A/D line has failed on its near touches of its 200-DMA since late-July 2021.

Thus, the Composite appears to be near a critical juncture. Bulls will want to not only see the index forge above its 200-DMA, but the A/D line as well, in order to put the breadth measure in gear with the IXIC to the upside.

Failures at the 200-DMAs can suggest risk that the prevailing bear trend is resuming.

(Terence Gabriel)

*****

FOR WEDNESDAY'S LIVE MARKETS' POSTS PRIOR TO 0900 EST/1400 GMT - CLICK HERE








(Terence Gabriel is a Reuters market analyst. The views expressed are his own)

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