* Major U.S. indexes green: Nasdaq up >2%
* Energy leads S&P 500 sector gainers; staples sole loser
* Dollar, gold ~flat; bitcoin gains; crude surges ~5%
* U.S. 10-Year Treasury yield jumps to ~3.00%
July 7 - 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
CRYPTO HONCHOS SAY WORST OF ROUT HAS PASSED (1400 EDT/1800 GMT)
Some top figures in the cryptocurrency space say that they believe the ecosystem has likely already made it through the worst of the risk-off pressure that has rocked digital asset prices.
Speaking on Thursday to CNBC, Mike Novogratz, founder of crypto investment firm Galaxy Digital, said he believes “most of that deleveraging is out of the system.”
“Could we go lower? Of course we could,” he said, but “it feels that we're 90% through that deleveraging.”
Many of the crypto industry's recent problems can be traced back to the spectacular collapse of so-called stablecoin TerraUSD in May, which saw the stablecoin lose almost all its value, along with its paired token. That crash put substantial pressure on bitcoin and ether, two of the largest digital assets.
Bitcoin was down 58% in the first six months of 2022, its worst first half of year showing ever.
Sam Bankman-Fried, the head of FTX, one of the largest crypto exchanges, likewise told Reuters in an interview this week that the worst of the liquidity crunch has likely passed, adding that the crash in crypto prices may have bottomed as prices appear to have stabilized.
(Hannah Lang)
*****
TELL ME SOMETHING GOOD: A PAYROLLS PREVIEW (1345 EDT/1745 GMT)
Friday morning, investors will be dusting the June jobs report for Goldilocks' fingerprints.
Any sign of overheating could herald even more hawkish tightening moves from the Fed, while a bowl of cold porridge would likely stoke recession fears. Like the world's most adorable breaking-and-entering perp, they'd prefer something between scalding hot and ice cold.
Consensus sees a nonfarm payroll increase of 268,000, which would be the smallest monthly increase since April 2021, but still above the 200,000 mark thought to be the minimum to accommodate new labor market entrants.
If economists are right, June payroll growth would put us a mere 271,000 below pre-pandemic levels, which would mean the United States will have recovered 97.4% of the 22 million jobs hemorrhaged when covid shutdowns hobbled the economy.
The actual topline print has more often than not surprised estimates to the upside over the last year:
The upward trend in jobless claims and layoffs support the notion that the ongoing labor drought - in which there are now 1.9 job openings for every unemployed worker - could be on the wane, and with it, hot wage inflation.
Wage growth, along with other major indicators, continues to sail far above Powell & Co's average annual 2% inflation target, a state of affairs which has the Fed chomping at the bit for another interest rate hike of at least 75 basis points at the conclusion of its July pow-wow.
An uptick in the languid labor market participation rate would also be a sight for sore eyes.
And, counterintuitively, so would an increase in the unemployment rate, which often happens when workers rejoin the labor market.
While analysts believe the jobless rate will hold firm at 3.6%, Fed watchers and recession worry-warts would be a-okay if it increased.
As shown in the graphic below, Fed rate hikes combined with current-level unemployment are fairly trustworthy harbingers of impending economic downturn:
(Stephen Culp)
*****
ACTIVE MANAGERS POST SOLID FIRST HALF - BOFA (1215 EDT/1615 GMT)
The S&P 500 just notched its worst first-half of a year since 1970.
Meanwhile, according to a BofA equity and quant strategy note, 45% of large-cap active mutual funds outperformed their Russell benchmarks in 1H, which was a "solid hit rate compared to the historical average annual hit rate of 36% since 2003."
BofA says that the 45% hit rate is also in-line with the first half of 2021, when 40% of funds ultimately surpassed their Russell 1000 benchmarks for the full-year, and is on pace to be the best year since 2017. Additionally, Q2 was especially strong with 56% of funds outperforming by 25bps on average.
Looking forward to the second-half of 2022, BofA thinks the market is becoming increasingly macro-driven (higher stock correlations) and alpha opportunities have become more rare given narrowing long-short spreads, which is not the most favorable environment for active funds.
However, BofA also believes that the big performance gap in high vs low quality and value vs growth indicates there is still alpha to be generated within the market.
"We expect volatility to remain elevated, an environment in which Quality should continue to outperform. We also maintain our Value bias given positioning, valuation, and fundamentals."
BofA says that quant funds have been a notable outperformer this year, with 54% beating the Russell 1000 by 60bps on average YTD. Small cap quants have been particularly strong, with 67% out front of the Russell 2000 benchmark, beating by 313bps on average.
Also in the hedge fund space, macro systematic funds have far outpaced other strategies, up 16.8% YTD, while equity hedge funds have lost 4.7%.
(Terence Gabriel)
*****
COMBINATION PLATTER: JOBLESS CLAIMS, LAYOFFS, TRADE BALANCE (1107 EDT/1507 GMT)
Data released on Thursday offered contrasting flavors of increasing jobless claims and layoffs, against record exports and a narrowing trade gap, all of which gives market participants plenty to chew on.
"The data flow do not look like the U.S. is in a recession, but another big negative shock would probably be enough to push it into one," says Bill Adams, chief economist for Comerica Bank in Dallas.
Let's hope that negative shock doesn't arrive on Friday in the form of the June jobs report, which analysts expect will show payrolls growth decelerating to 268,000 and unemployment holding firm at 3.6%.
The number of U.S. workers filling out first-time applications for unemployment benefits unexpectedly edged higher last week.
The reading came in at 235,000, or a 4,000 increase, versus the nominal decline to 230,000 analysts expected.
Even so, the data remains near the low-end of the range associated with healthy labor market churn.
Ongoing claims , reported on a one-week lag, also defied consensus, jumping 3.5% to 1.375 million.
While Nancy Vanden Houten, lead U.S. economist at Oxford Economics (OE), believes jobless claims are on the upswing, she also thinks the worker drought is still in effect.
"We don't look for a steep rise in claims from current levels," Houten says. "Reports of layoffs are increasing in some sectors, however demand for workers remains historically high."
Speaking of which, longer lines at the unemployment office are at least partly due to a rise in announced job cuts, which surged by 57% in June.
There were 32,517 planned layoffs last month , according to executive outplacement firm Challenger, Gray & Christmas $(CGC)$, the highest number since February 2021 and the second month in 2022 to post a year-over-year increase.
While 37.4% fewer pink slips have been bulk-issued so far this year, the trend is on an upswing. Healthcare, automotive and services have been the hardest-hit sectors so far this year.
"Employers are beginning to respond to financial pressures and slowing demand by cutting costs," writes Andrew Challenger, senior vice president at CGC. "While the labor market is still tight, that tightness may begin to ease in the next few months."
Or as Jamie Cox, managing partner at Harris Financial Group, puts it, "It’s never a good thing to see layoffs, but the pressure on wages may have now peaked. A few more weeks of these types of numbers and maybe, just maybe, financial conditions are tight enough to allow the Fed to throttle back on the scale of rate increases."
Finally, the discrepancy between the value of foreign goods and services imported to the U.S. and domestic goods and services shipped abroad pulled back a tad in May.
The Commerce Department's international trade report
showed exports hitting a record high, which drove the 1.3% decline in the deficit, which now sits at $85.5 billion.
Imports increased as well, by 0.6%.
Capital goods churned lower, both arriving and departing U.S. ports. And the services surplus dropped 8.1% to $71.5 billion.
The closely watched goods trade gap between the U.S. and China widened by 3.2% to $31.5 billion.
But in light of what he calls the "rising fragility in the world economy," OE senior economist Mahir Rasheed sees a slowdown in the coming months
"An aggressive tightening campaign from the Fed to rein in inflation will restrain still-solid domestic consumption this year, while exports navigate downside risks as Europe battles high prices, China growth downshifts, and the dollar continues to strengthen," Rasheed writes.
As seen in the graphic below, the trade deficit has been a net detractor to U.S. economic growth for seven consecutive quarters. So any narrowing of the gap is a step in the right direction:
Wall Street is in a buying mood, with growthy megacaps doing the heaviest lifting and putting the Nasdaq out front.
Chips and small caps are having a better day than most.
(Stephen Culp)
*****
S&P 500, NASDAQ ATTEMPT TO SCORE FOUR (1004 EDT/1404 GMT)
Major U.S. indexes are higher early on Thursday as investors assess the outlook for monetary policy amid growing concerns about an economic downturn following aggressive interest rate hikes to tackle inflation.
The S&P 500 and Nasdaq Composite are both on track to rise for a fourth-straight day. The last four-day win streaks for these indexes were in mid-to-late March.
Meanwhile, nearly all major S&P 500 sectors are rising with energy out front. This, with NYMEX crude futures popping around 5%.
Under the surface, chips and small caps are among outperformers.
Here is where markets stood shortly after 1000 EDT:
(Terence Gabriel)
*****
S&P 500 INDEX AND FIBONACCI FLYPAPER (0900 EDT/1300 GMT)
Since collapsing from its record high, the S&P 500 index
has been finding Fibonacci retracement levels of its March 2020-January 2022 advance to be both sticky and significant:
From late-January to mid-March, the benchmark index found support at the 23.6% retracement at 4,198.70. After refusing to end a week below this level, the SPX ultimately rallied nearly 13% into its late-March high.
In the wake of renewed weakness, once the index then ended a week below this retracement in late-April, it made a bee-line for the 38.2% Fibonacci retracement at 3,815.20.
After bottoming at 3,810.32 on May 20, the SPX popped as much as 10% over the next eight trading days. However, the 23.6% retracement, now acting as resistance, back-stopped by the descending 10-week moving average, capped this bounce.
With its next down-leg, the SPX then broke the 38.2% level, falling to a low of 3,636.87, before rebounding. Since then, however, the 38.2% retracement has been particularly sticky.
Over the past 16 trading days, the SPX has been churning around it, with an average daily closing disparity of just -0.6%.
Meanwhile, the SPX finds itself in what may be another sticky situation; the descending 10-week moving average $(WMA.AU)$, now 3,947, and the rising 200-WMA, now 3,517 are rapidly converging. The spread between these moving averages is down to 430 points.
The 10-WMA has been above the longer-term moving average for 605-straight weeks. It narrowly avoided breaking the 200-WMA during bouts of weakness in late 2011 and early 2020, by only around 20 to 50 points.
The direction the SPX will pull away from the sticky 38.2% level remains to be seen. A thrust above the 10-WMA can clear the way for another test of the 23.6% resistance.
A break of last week's low at 3,738.67, however, can threaten the 3,636.87 June trough and the 200-WMA. The 50% retracement of the March 2020-January 2022 advance is at 3,505.24.
(Terence Gabriel)
*****
FOR THURSDAY'S LIVE MARKETS' POSTS PRIOR TO 0900 EDT/1300 GMT - CLICK HERE:
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ SPX07072022 earlytrade07072022 Jobless claims Challenger Gray Trade balance Trade balance goods Nonfarm payrolls Nonfarm payrolls estimates Inflation Fed funds target rate
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
(Terence Gabriel is a Reuters market analyst. The views expressed are his own)