U.S. stocks take the data in stride, rise
Nasdaq out front with ~1.8% gain, S&P up 1.1%, Dow up 0.61%
Energy leads S&P 500 sector gainers; staples is sole loser
Dollar, crude rise; bitcoin gold declines
U.S. 10-Year Treasury yield rises to 3.50%
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U.S. STOCKS TAKE THE DATA IN STRIDE, RISE (1605 EST/2105 GMT)
Wall Street advanced in choppy trading on Thursday as investors grappled with an onslaught of economic data and a string of mixed corporate earnings, all the while eyeing the clock as it ticks down toward next week's Federal Reserve monetary policy meeting.
In the end, GDP data appeared to ease recession worries.
All three of the main indexes closed higher with the Nasdaq .IXIC, up nearly 1.8%, posting the biggest rise.
With its strength, the IXIC ended around 11,512, putting it just shy of its closely watched 200-day moving average (DMA), which ended at 11,516. The Composite last closed above this long-term moving average on January 14, 2022.
Meanwhile, the S&P 500 index .SPX finished above its 200-DMA for a fifth-straight session, and above the resistance line from its January 2022 record high for a fourth-straight session.
Excitement is building for bulls as the spread between the S&P 500's rising 50-DMA (3,940.73) and descending 200-DMA (3,959.47) is now less than 19 points, and therefore a golden cross may be near.
Here is where markets stood just shortly after Thursday's closing bell:
LANGUAGE CLUES FOR THE FOMC PUZZLE (1331 EST/1831 GMT)
With expectations already converging around a quarter of a percent interest rate hike after the Federal Open Market Committee meeting scheduled to end with a public statement and a press conference on Feb 1, investors will most certainly be laser focused on what comes next.
And Barclays chief U.S. economist Marc Giannoni is pointing at specific parts of the FOMC's statement for potential indications of future policy.
The expected Feb. 1 25 basis points move would increase the fed funds rate to a 4.50-4.75% range, pushing the policy maker's stance further into restrictive territory.
And Barclays projects another 25 bp hike in March and a final hike in May, bringing the terminal range to 5.00-5.25%.
But if inflation, wage and economic activity data were to keep coming in weaker than expected in coming weeks, the economist noted that this "would likely lower the probability on a May hike."
While recent declines in inflation and wage growth allow the Fed time to assess the effects of its tightening cycle so far, however, it doesn't necessarily change the central bank's view on where rates should peak, Giannoni writes.
Like in December, he expected it to be careful to change to smaller rate hikes "without furthering expectations that an end to its hiking cycle is imminent" because it doesn't want to risk more dovish expectations undermining its objectives.
So the Fed will still talk next week about "actively managing risks that inflation will remain elevated for a sustained period."
But Giannone sees the FOMC potentially replacing its reference to "ongoing increases" with the phrase "additional increases." This because he has long argued that the Fed would change its language within a few meetings of a pause.
Still such a change risks fuelling of hopes and interpretations that hikes will pause with the March meeting, so to avoid this over-excitement "Powell would need to clarify the meaning at the press conference."
He also expects the FOMC to replace "In determining the pace of future increases" with something like "In determining the number of future increases" implying a shift in focus to the level of rates from the size of hikes going forward.
DOLLAR DECLINE INVIGORATES INTERNATIONAL STOCKS -CRESSET (1218 EST/1718 GMT)
International stock markets have been leading the way since the equity market's bottom last October.
As Jack Ablin, chief investment officer and founding partner of Cresset, sees it, the likely catalyst for this has been the dollar's decline, reflecting investors’ view that a peak in Fed tightening is in sight.
Cresset uses five factors when evaluating markets: valuations, the economic backdrop, liquidity, psychology and momentum.
Ablin says that when taking these factors into consideration, "we can see that international equity valuations are compelling relative to history."
In sum, Ablin believes that a positive argument is beginning to coalesce for developed international equities. That said, H1/23 earnings give him some pause.
"2023 will be the year in which the effect of higher interest rates will be felt in economies and on profits. We will be paying close attention to earnings reports and outlooks this season, looking for clues that the impact of higher interest rates on corporate profits will be muted. Until then, our gold positions continue to benefit from dollar weakness."
Here is a rough recreation of one of Ablin's charts showing that the MSCI EAFE index .dMIEA00000PUS, an index of large- and mid-capitalization developed market equities, excluding the U.S. and Canada, has gotten a boost relative to the S&P 500 .SPX from sudden dollar .DXY weakness:
IS TESLA READY TO FACE THE CHINESE EV RACE? (1137 EST/1637 GMT)
Elon Musk on Wednesday assured investors about strong demand thanks to price cuts. But will that be enough to beat fierce competition in China, where a flurry of domestic EV makers are giving global giants such as Tesla a run for their money?
Musk, who called the world's largest automotive market the most competitive, said a Chinese company is most likely to be second to Tesla as these firms "work the hardest and they work the smartest".
Chinese automakers have used a resilient localized supply chain for battery materials and auto parts to its strength to churn out a variety of models in the market compared with Tesla's four aging cars, Model S, 3, X and Y.
"These Chinese EV companies work harder because there is actual competition here. In the US, it's still mostly Tesla; however, here in China, Tesla is unremarkable in the sea of EVs," said Bridget McCarthy, analyst at hedge fund Snow Bull Capital.
Though Tesla is among the largest EV makers in the country, BYD outpaced the Austin, Texas-based automaker last year.
Tesla shares jumped 8% after it posted a largely upbeat forecast for the year, and peers Lucid LCID.O and Rivian Automotive RIVN.O are off between 2% and 3% on Thursday.
Meanwhile, U.S. shares of Chinese EV makers are also rising with Nio Inc NIO.N, Li Auto LI.O and Xpeng XPEV.N all up between 2.5% and 6.9%.
(Eva Mathews and Akash Sriram)
DATA FEAST: GDP, DURABLE GOODS, JOBLESS CLAIMS, ETC (1114 EST/1614 GMT)
A data buffet on Tuesday invited market participants to gorge on evidence of U.S. economic resilience and ongoing tightness in the labor market, which is all very hunky-dory until one considers the terminal level of the Fed's restrictive policy rate.
The U.S. economy grew at 2.9% on a quarterly annualized basis in the closing months of 2022, more robust than the 2.6% consensus and a bit cooler than the 3.2% third-quarter print.
The Commerce Department's first "advance" take on fourth quarter GDP USGDPA=ECI also showed price growth cooling along with consumer spending.
"It's a good number but it doesn’t negate the possibility of a mild recession," says Peter Cardillo, chief market economist at Spartan Capital. "(The Fed tightening) hasn't worked its way through the system, but you’re beginning to see cracks in consumption and inflation."
"I’m sure the Fed is going to take note of that."
Core quarterly PCE prices fell 0.8 percentage points to 3.9%, and personal consumption - which accounts for about 70% of the U.S. economy - eased to 2.1% from 2.3% in Q3.
Another report from the Commerce Department showed new orders for long-lasting, U.S.-made goods USDGN=ECI - which includes everything from waffle irons to fighter jets - blasted past analyst estimates by jumping 5.6% in December, reversing November's 1.7% dip.
Economist forecasts called for a milder 2.5% increase in durable goods orders.
Line-by-line, a 115.5% surge in commercial aircraft/parts led the charge. Excluding transportation goods, however, new orders edged 0.1% lower.
"Orders ex-transportation ... continue to suffer under the weight of aggressive policy tightening by the Fed," says Ian Shepherdson, chief economist at Pantheon Macroeconomics.
"Outright declines in core goods orders signal a deeper downturn in manufacturing output, which now looks set to last through the first quarter, at least."
Indeed, core capital goods - which strip away defense and aircraft items, are considered a barometer for U.S. spending intentions - decreased by 0.2%, in line with estimates.
The number of U.S. workers filing first-time applications for unemployment benefits USJOB=ECI unexpectedly dipped by 3.1% last week to 186,000, falling short of the 205,000 analysts expected.
It marks the series' lowest reading since April and its second week below 200,000, a level typically associated with healthy labor market churn.
The Labor Department's print provides the latest bit of data to tell us what we already know, that the jobs market remains tight despite a string of high profile tech layoffs of late.
This means that employers are loathe to hand out pink slips and implies ongoing upward pressure on wage growth, a worrisome phenomenon to the Fed.
"Given the recent uptick in layoff announcements coming from large businesses, it would be reasonable to expect claims to climb higher, but they are not," writes Thomas Simons, economist at Jefferies. "The labor market data supports continued upward wage pressure even as other economic data releases are slowing and inflation is coming off the highs."
Ongoing claims USJOBN=ECI, reported on a one-week lag, actually edged higher to 1.675 million, hinting at the possibility that it's taking longer for jobless workers to land a new gig.
A third data set from the Commerce Department showed sales of freshly constructed U.S. homes USHNS=ECI increased by 2.3% last month to 616,000 units at a seasonally adjusted annualized rate (SAAR).
The number was just a hair below consensus, which called for 617,000 units SAAR.
Recent easing in mortgage rates, commodity prices and home price growth have sparked a glimmer of hope in a beleaguered sector which has groaned under the weight of inventory scarcity and evaporating affordability.
Most recently, applications for home loans jumped 7% last week as the average 30-year fixed contract rate cooled, as per the Mortgage Bankers Association.
"The labor market is still strong and there are many households who are looking to upgrade their space as remote and hybrid work appear to be sustainable long-term options for many," writes Kelly Mangold, principal at RCLCO Real Estate Consulting.
Below we see how inventories of unsold new homes hovers well above the pre-COVID level, and despite a slight uptick this month, homebuilder sentiment sits at historically pessimistic levels:
Finally, the indefatigable Commerce Department released its advance take on the goods trade gap USGBAL=ECI and wholesale inventories USAWIN=ECI for December.
The difference between the cost of U.S.-made merchandise exported abroad and foreign-made goods imported to the U.S. widened by 8.9% to $90.27 billion.
Scrolling back up to the GDP graphic, net trade contributed 0.5 percentage points to the topline in that last three months of the year.
"Looking ahead, trade flows are at risk of slowing from current levels, as the effects of higher rates globally impact demand for goods and services," says Rubeela Farooqi, chief U.S. economist at High Frequency Economics.
Meanwhile, the goods stacked in the warehouses of U.S. wholesalers grew by a meager 0.1%, marking a sharp deceleration from the previous month's 0.9% gain.
Astute observers will note that in the fourth quarter, private inventories contributed a robust 1.5 percentage points to the headline GDP number, snapping a two-quarter stint in the detractor column.
The S&P and Nasdaq - having digested this data feast, along with a slew of mixed earnings - have decided to take the green pill.
Tech and tech-adjacent momentum stocks put the Nasdaq on top, with the NYSE FANG+ index a clear outperformer.
TREASURY YIELDS SHOULD FALL, BUT WILL DEMAND BE AN ISSUE? (1030 EST/1530 GMT)
U.S. Treasury yields look set to fall this year as inflation moderates and the Federal Reserve reaches the end of its tightening cycle, but reduced demand for U.S. government debt could also limit further yield declines, according to Capital Economics.
“We forecast the 10-year Treasury yield to decline between now and the end of the year, as inflation eases further and the Fed transitions to monetary loosening,” Thomas Matthews, senior markets economist said in a report. However, “a key risk to this projection, in our view, is the weak outlook for demand for Treasuries.”
Yield differentials between U.S. and foreign debt have shrunk and the costs of currency hedging is high, which may make U.S. debt less attractive to investors in other major developed markets such as the euro-zone and Japan. Current account surpluses in Europe and Japan have also shrunk, which means they have fewer excess savings to invest in Treasuries.
Energy exporters who have been running large current account surpluses are likely to be a less significant source of demand for U.S. debt as they diversify their portfolios. Meanwhile, stronger Asian currencies as China reopens means that central banks in the region are likely to stop selling Treasuries, but are not expected to return to large-scale purchases any time soon.
“That leaves domestic investors to pick up the slack,” Matthews said. “This year and next will, in our view, see increasing pressure on domestic banks, insurers, pension and investment funds as the primary source of Treasury demand, at a time when the central bank is set to continue to run down its holdings.”
The benchmark 10-year yield US10YT=RR has declined to 3.487% from a 15-year peak of 4.338% on Oct. 21, on expectations that the U.S. central bank will pivot to a looser monetary policy, and on concerns that the U.S. economy is facing a slowdown.
Matthews expects that the 10-year Treasury yield has only limited declines left, and is likely to reach 3.25% by year-end and 3.00% by the end of 2024.
U.S. STOCKS DIGEST DATA, CHOP AROUND (1012 EST/1512 GMT)
Wall Street's main indexes are mixed early on Thursday after data released at 0830 EST showed a resilient labor market and better-than-expected economic growth last quarter that helped ease worries of a deep recession, while Tesla's bullish outlook added to the cheer.
December new home sales released at 1000 EST came in roughly in-line with the Reuters poll.
With this, the tech-heavy Nasdaq .IXIC is posting the biggest rise. It is up nearly 1%. The S&P 500 .SPX is up slightly, while the DJI .DJI is edging lower.
Meanwhile, the Nasdaq, which is on track for a fourth-straight weekly rise, nearly touched its descending 200-day moving average, which now resides around 11,516. The index hit a high of 11,494.636 before quickly backing off to the 11,400 area.
Here is a snapshot of where market stood shortly after 1000 EST:
THE FUTURE MIGHT BE BLUE (0901 EST/1401 GMT)
The primary way to move low-carbon hydrogen from production sources to market is going to be ammonia, as hydrogen is expensive to transport, given its low energy density and difficulty in liquefaction, says HSBC.
One way to make low-carbon hydrogen is to build green hydrogen projects, powered by renewable energy, while another way to achieve it would be - to make ammonia from natural gas and then capture the carbon emissions, which is ‘blue’ ammonia.
While conventional ammonia production emits carbon dioxide(CO2) if it is made with fossil fuel, during the production of blue ammonia any CO2 generated is captured and stored.
The high-return, capital-light route to monetizing gas via the hydrogen market is the reason behind the strong interest that Middle Eastern oil companies Saudi Aramco 2222.SE and QatarEnergy have in blue ammonia projects.
Last year, QatarEnergy said it will build the world's largest "blue" ammonia plant, which is expected to come online in the first quarter of 2026 and to produce 1.2 million tons per year. Aramco has plans to produce 11 million tons of blue ammonia by 2030, says the brokerage.
With integration into natural gas, QatarEnergy and Aramco do not take the risk of gas price volatility and thus have broad control over their production costs.
Also, the Inflation Reduction Act (IRA) in the U.S. improves the country's project economics, with companies receiving increased credits compared to earlier for CO2 capture.
"If blue ammonia were priced off the potential ‘pricing umbrella’ offered by green hydrogen (zero carbon emissions), then the returns on blue ammonia projects could potentially be exceptional, given capital costs that are a fraction of those for green hydrogen," says HSBC.
S&P 500 INDEX POISED TO PUSH HIGHER AFTER DATA DELUGE (0845 EST/1345 GMT)
In the wake of Thursday's 0830 EST U.S. data deluge, e-mini S&P 500 futures EScv1 are gaining about 0.6%. This compares to a rise of about 0.5% just prior to the economic numbers coming out.
Action is choppy, but if this holds, the S&P 500 index .SPX, which ended Wednesday around 4,016, appears poised to open around 20 points higher. If so, it can once again attempt to overwhelm an important chart hurdle:
With such an opening pop, the SPX can battle above the 233-day moving average, which ended Wednesday at about 4,024. This Fibonacci-based moving average has capped strength on a closing basis since April 20.
Monday's high was at 4,039.31. The early-to-mid-December highs were at 4,100.51-4,100.96, and the mid-September high was at 4,119.28.
Meanwhile, continued gains can see the spread between the 50- and 200-DMAs narrow further. The spread ended Wednesday at just -22.23 points, or its tightest reading since March 15. If the 50-DMA can cross above the 200-DMA, it can signal a "golden cross," suggesting the potential for a major advance.
The 50- and 200-DMAs should come in around 3,939 and 3,959 on Thursday.
FOR THURSDAY'S LIVE MARKETS' POSTS PRIOR TO 0845 EST/1345 GMT - CLICK HERE
New home saleshttps://tmsnrt.rs/3WF9C3A
Tesla vs Chinese EV makers in the last 12 monthshttps://tmsnrt.rs/3Dgk4aV
Tesla's Q4 delivery growth underperforms Li Auto and Niohttps://tmsnrt.rs/3kEdfJD
(Terence Gabriel is a Reuters market analyst. The views expressed are his own)</body></html>
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