LIVE MARKETS Trade balance, NFIB, consumer credit: The demand/inflation tango
- Most major indexes turn red, but bounce of session lows
- Healthcare worst S&P sector performer, energy surges
- Euro STOXX 600 index slips ~0.9%
- Dollar slips; gold, bitcoin gain; crude jumps
- U.S. 10-Year Treasury yield rises to ~1.85%
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TRADE BALANCE, NFIB, CONSUMER CREDIT: THE DEMAND/INFLATION TANGO (1030 EST/1530 GMT)
Data released on Tuesday – and late Monday – tells market watchers what they already knew: demand is robust, running circles around a slowly recovering supply chain.
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The gap in the value of goods and services imported to the U.S. versus those of domestic origin exported abroad (USTBAL=ECI) widened more than expected in January to $89.7 billion, the largest deficit on record. read more
The Commerce Department’s reading was $2.6 billion bigger than the consensus forecast, and was driven by surging imports as demand in the U.S. continued to outpace the rest of the world, a state of affairs which could bode ill for first-quarter economic growth.
“Net exports have been a drag on GDP over the last six quarters and the early data suggest another negative contribution in Q1,” writes Rubeela Farooqi, chief U.S. economist at High Frequency Economics, who adds “overall, trade flows are at historic highs despite supply chain disruptions and logistical challenges.”
“The deficit is poised to remain elevated for now on ongoing strong demand for imports,” Farooqi says.
The closely watched goods trade gap with China held steady at $36.4 billion.
In a separate report, small business owners grew grumpier in February, according to the National Federation of Independent Business (NFIB). read more
The NFIB’s Business Optimism index (USOPIN=ECI) shed 1.4 points to land at 95.7, the sourest reading since January 2021, weighed down by inflation concerns.
“Inflation continues to be a problem on Main Street, leading more owners to raise selling prices again in February,” says Bill Dunkelberg, NFIB’s chief economist.
The percentage of respondents identifying hot inflation as their biggest problem hit the highest level in 42 years, and the net percent of participants hiking average selling prices reached a 48-year high.
But it’s not all bad news, according to Ian Shepherdson, chief economist at Pantheon Macroeconomics.
“Capex intentions dipped two points but are holding up well and are consistent with the idea that business fixed investment will rise at a double-digit pace over the next year,” he writes.
It should be noted that the NFIB is a politically active membership organization, and the index was last lower the month President Joe Biden was inaugurated.
Finally, in more ancient news, on Monday afternoon the Federal Reserve released its data on outstanding consumer credit (USCRED=ECI), which increased by $6.84 billion, marking an unexpected deceleration and missing estimates by a country mile.
Economists expected total consumer credit debt to accelerate by $23.8 billion in January.
Total consumer credit outstanding currently sits at about $4.4 trillion.
An increase in non-revolving credit, which includes big ticket items such as autos and tuition, did the heavy lifting as revolving credit, or credit card debt, was essentially unchanged.
This bucks the trend a bit; credit card spending has long since risen above pre-pandemic levels, while non-revolving credit, a smaller piece of the total pie, is yet to recover ground lost to COVID.
It pays to remember credit outstanding is not the same as consumer spending. An elevated saving rate has left the average consumer with stuffed piggy banks and fat wallets.
After a green start, Wall Street took a u-turn in morning trading, extending Monday’s sell off, which confirmed a correction for the Dow, and a bear market for the Nasdaq.
Crude prices continued to surge, taking energy stocks (.SPNY) with them.
NASDAQ 100 FUTURES: FIGHTING TO HOLD FEBRUARY LOW (0900 EST/1400 GMT)
CME e-mini Nasdaq 100 futures have been beaten up pretty badly over the past three trading days. In fact, they ended Monday at their lowest level since mid-May 2021, which put them down 19.6% from their November-19 record closing high.
Of note, the Nasdaq Composite (.IXIC) ended Monday down 20.1% from its November-19 record close, officially putting it in bear-market territory.
Overnight action, saw the futures fall as low as 13,103.25, before then snapping back. With this reversal, the futures have yet to violate their February 24 intraday low at 13,025.75:
Meanwhile, the daily RSI, at just over 30.00, is attempting to stabilize above its February 23 low at 27.90. If so, this momentum indicator will have the potential to establish a second higher-low vs its late-January trough of 17.533.
Such a convergence could signal building positive momentum and, therefore, the potential for a surprise upside turn.
In that event, however, the futures, would still have to contend with stiff resistance in the form of the descending 30-day moving average (DMA) which has been consistently capping strength since early-to-mid January.
Additionally, since late-November, the RSI has been exhibiting bearish behavior by being unable to muster enough strength to reclaim the 70.00 overbought threshold.
Thus, on any strength, traders will be eyeing future’s action closely vs the 30-DMA, along with the RSI, to add confidence in the sustainability of any bounce. read more
On a break of 13,025, the next support is at the mid-May low of 12,896. This is just ahead of the 38.2% Fibonacci retracement of the entire March-2020/November-2021 advance at 12,873.57.
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Terence Gabriel is a Reuters market analyst. The views expressed are his own
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