LIVE MARKETS PMI, JOLTS, construction spending: Winter's chill

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  • All 3 indexes gyrate, last ~flat; banks, transports rise
  • Utilities weakest major S&P sector; energy leads gainers
  • Euro STOXX 600 index rallies ~1.2%
  • Dollar dips; gold, crude, bitcoin up
  • US 10-Year Treasury yield rises to ~1.80%

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Data arrived in triplicate on Tuesday, shuffling in fashionably late after the opening bell and bearing dreary news of a waning economic recovery.

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Activity at U.S. factories lost steam in the first month of the year, expanding at its slowest rate in over a year.

The Institute for Supply Management (ISM) purchasing managers' index (PMI) (USPMI=ECI) dropped 1.2 points to 57.6, just a hair above consensus and the lowest reading since November 2020. read more

A PMI number above 50 signifies increased activity over the previous month.

A drop in the important 'new orders' segment marked that component's lowest point since June 2020, and the 'prices paid' subindex - closely watched amid a hot inflation environment - surged 7.9 points to 76.1.

Among the cold comforts within the report, the 'employment' component edged higher and supplier deliveries held steady in a sign that supply chain pressures might have crested.

"There were shortages of critical intermediate materials, difficulties in transporting products and lack of direct labor on factory floors due to the COVID-19 omicron variant," writes Timothy Fiore, chair of ISM's Manufacturing Business Survey Committee.

Remarks from the survey's respondents are littered with statements like "massive interruptions to our production due to supplier COVID-19 problems," "we are still constrained by (a lack of) qualified labor," and "Transportation restrictions and a lack of supplier manpower continue to create significant shortages that limit our production."

But some shoots of green popped up in survey participants' comments. "Strong backlog of orders coming into the new year," and "the supply chain crunch may be loosening a bit" were among the more encouraging remarks.

IHS Markit also released its take on January manufacturing PMI (USMPMF=ECI), delivering a print of 55.5, half a point above its advance "flash" reading taken mid-month.

The graphic below shows headline ISM PMI along with several of the subcomponents:


Next, job openings unexpectedly inched up to 10.926 million in December, nudging back toward record territory as surging Omicron infections kept workers home.

The Labor Department's Job Openings and Labor Turnover Survey (JOLTS) (USJOLT=ECI), showed that overall labor market churn cooled off in the last month of 2021, with hires, fires and quits all slowing down.

The quit rate - often seen as a proxy for consumer expectations, as workers are less likely to walk away from a gig in times of economic uncertainty - dipped to 2.9% of the workforce from 3%.

"The layoffs rate hit an historic low in December, lowest since the series began in 2000," Elise Gould, senior economist at the Economic Policy Institute says in a series of chained tweets. "Job openings increased in accommodations and food services as well as state and local government education, two sectors still suffering some of the largest job shortfalls since Feb 2020."


Finally, expenditures on construction projects (USTCNS=ECI) inched 0.2% higher in December, according to the Commerce Department, a 40-basis-point deceleration from the prior month and well below the 0.6% analysts expected. read more

Residential construction again did the heavy lifting, rising 1.1% - the strongest reading since September - while a 1.6% drop in publicly funded projects held the overall gain in check.

Potential homebuyers' mad, pandemic-driven dash for the suburbs has significantly depleted supply of homes on the market, a phenomenon which as given a solid boost to homebuilders since shortly after the onset of the health crisis.

But some analysts see that trend running out of gas this year.

"We expect residential construction outlays to register only modest gains in 2022," says Nancy Vanden Houten, lead U.S. economist at Oxford Economics.

Construction spending

Wall Street seemed to be teasing market watchers again with its indecision, flipping between red and green throughout morning trading.

Energy (.SPNY) and transports (.DJT) are the day's clear winners as the noon hour approaches.

(Stephen Culp)



Dramatic flattening in the U.S. Treasury yield curve has increased concerns that the Federal Reserve could go too far when it begins raising rates in a bid to tackle unabated inflation, and possibly tip the U.S. economy into recession.

The U.S. central bank could, however, lean more on balance sheet reduction to reduce the impact of rate hikes on the yield curve.

The closely watched two-year, 10-year yield curve reached 57 basis points on Monday, the smallest yield gap since Nov. 2020, and was last at 62 basis points. It has flattened from 92 basis points in early Jan. and 130 basis points in Oct.

While the curve remains far from an inversion, which is viewed as an indicator that a recession is likely in the next one-to-two years, it’s rapid flattening reflects increasing fears that the U.S. central bank could make a policy error.

Shorter-dated Treasury yields have surged and stock markets have been volatile as Fed officials including Chair Jerome Powell signal that they will take a more aggressive stance to stamp out persistent price pressures.

Deutsche Bank analyst Steven Zeng said that the Fed could shrink its balance sheet at a faster pace, based on the bank’s projections that excess liquidity, particularly in the Fed’s reverse repurchase agreement facility, could stay high for another two years.

“The implication is that the Fed could aggressively use balance sheet unwind as a policy tool to mitigate excessive flattening of the curve resulting from faster pace of rate hikes,” Zeng said in a report.

Money market investors lent the Fed $1.65 trillion in the facility on Monday as they continued to struggle with excess cash and a dearth of safe, short-term assets.

Fed policymakers on Monday said they'll raise interest rates in March, but spoke cautiously about what might follow, signaling a desire to keep options open in the face of an uncertain outlook for inflation and a pandemic still ongoing. read more

Flatter curve signals recession fears

(Karen Brettell)



We're less than 100 days away from the French presidential election which is typically seen as the worst possible time to announce a big M&A deal involving a French blue chip.

The idea being that with the campaign cruising towards full speed, many candidates for the Elysee palace would happily jump on any scent of controversy to make the failure of a deal a key proposal in their platform.

In that context, many analysts, such as at Barclays, doubt France's leading supermarket groups, Carrefour and Auchan, would announce a deal, should one be ready, before the French head to the voting polls.

Why the controversy?

"We believe that the possibility of significant layoffs resulting from any potential deal, and the presence of financial investors, including private equity firms, will likely mean any transaction would be subject to close scrutiny by the French government", Barclays analysts argued in a note.

"We can't rule out that the latter could block any potential deal, as was the case last year, when Couche-Tard contemplated an acquisition of Carrefour", they add.

At Bernstein, the research team notes that there would be clear antitrust issues given both groups' large market shares and commented that competition authorities would "have fun" reviewing a potential merger.

How much potential Gallic M&A is on hold is anyone's guess but it's likely that now wouldn't be the right time to consolidate the telecom sector or announce a pan-European deal involving a French bank.

(Julien Ponthus)



Major U.S. indexes are little changed on Tuesday in the wake of gains from the past two sessions, as focus turned to data on manufacturing and job openings.

Nevertheless, there is early strength in transports. The Dow Transports (.DJT) are jumping nearly 3%, underpinned by a surge in UPS (UPS.N).

This after the S&P 500 (.SPX) just had its biggest monthly drop since March 2020, and its worst start to the year since January 2009. read more

Meanwhile, Philadelphia Fed President Patrick Harker said it may be appropriate for the Federal Reserve to raise interest rates four times this year, and to move more aggressively if the factors leading to higher inflation, such as supply chain issues, are not mitigated. read more

U.S. January ISM Manufacturing PMI is due at 1000 AM EST. The expectation calls for a reading of 57.5 vs 58.7 last month. Prices paid is expected at 68.1 vs 68.2 in December.

Here is where markets stand early on Tuesday:


(Terence Gabriel)



The S&P 500 index (.SPX) is quickly nearing an area on the charts where it must prove its mettle to add confidence that its sudden strength is more than just a counter-trend bounce.

Last Thursday, the SPX ended down 9.8% from its January 3 record close. With this, the benchmark index closed at its most oversold level on a daily basis since late-February 2020.

Since then, it has mounted an impressive bounce of more than 4%, and reclaimed its 200-day moving average (DMA):


The daily RSI plunged to 16 last Thursday, suggesting the market was especially ripe for a bounce. Now, with the market's rally, it has recovered to the 50 area. However, it is facing the resistance line from its early November peak.

Meanwhile, despite reclaiming the 200-DMA, the 100-DMA, which acted as more direct support throughout much of the 2020-2022 advance, is still resistance at around 4,570.

Additionally, the SPX's January 10 low at 4,582.24 appears to be another key hurdle. If the SPX can reclaim this level, coupled with the RSI regaining enough strength to move above the 70.00 overbought threshold, it could add credence to the view that the SPX found an important low last week.

However, if the SPX rolls under resistance, and closes back below the 200-DMA, which ended Monday around 4,435, it can suggest potential for new lows below 4,222.62.

In that event, traders will be watching for the 23.6% Fibonacci retracement of the 2020-2022 advance, at 4,198.70, to potentially hold again, while the RSI forms a higher low. Since early 2020, more enduring SPX lows have been accompanied by a bullish momentum convergence.

(Terence Gabriel)



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

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