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Bad Data Still Good News For Stocks, Oil, ECB Fallout, Gold

Published 07/22/2022, 03:35 PM
Updated 07/09/2023, 06:31 AM


U.S. equities were stronger Thursday, the S&P 500 was up 1.0%. U.S. bonds rallied, 10-year yields were down 15bps to 2.87% and 2-year yields were down 14bps after weak U.S. data. Oil closed down 2.6%. but off the overnight lows.

The U.S. employment situation is turning ugly as U.S. continuing claims spiked higher, up to 1384,000 from 1331,000 the week prior. There are increasing reports of companies putting in place hiring freezes, if not moving to layoffs. Ford is reporting it has "too many staff."

Meanwhile, the Philadelphia Fed manufacturing index at -12.3 has retraced half of the post-pandemic recovery. 

But it is still a case of bad data is still good news for stocks and it very much highlights the disconnect between Wall Street and Main Street. 

What's good for Main Street and what's good for Wall Street aren't necessarily the same thing. That is mainly because the financial markets, by their very nature, pull events forward, whereas the public lives the economic slowdown in real time.

By slashing staff, companies can preserve profits, and with the uptick in unemployment, the Fed is forced to reverse course, with rate cuts supporting equity multiples. Eventually, the pendulum will swing again in favour of Wall Street over Main Street.


Oil is struggling amid concerns of increasing supply and a drop in gasoline demand in the U.S.

 A counter-seasonal buyer's strike at the pump sees the U.S, peak driving season running below the same week in 2020 as higher fuel prices hit consumption. 

Production in Libya has risen to 700,000 bbl/day and is expected to return to 1.2 million bbl/day in a week after restrictions on the country's exports were lifted. 

Also, U.S. Deputy Treasury Secretary Adeyemo said a price cap on Russian oil should go into effect by December, allowing Russian energy to flow into the market. 

Meanwhile, the Asian Development Bank lowered its GDP growth for China by 0.5pp, to 4.6% for 2022, due to the impact of the country's Zero COVID policy, which added further concerns on slower demand growth.


The European Central Bank removed negative rates in one go, in the end, traders saw a dovish 50bp hike flashing across their screens. The terminal rate price remains at just below 1.5%, but that level seems vulnerable to the downside risks to growth that the ECB sees. 

Considering early comments from ECB President Christine Lagarde, it sounds like yesterday's 50bp hike was opportunistic. In the background, the hawks were squawking, "Could you get a jumbo rate hikes done while there's still a chance?" The ECB has long wanted to get out of negative rates and even more so with the EUR/USD breaching parity.

As we suggested yesterday, many macro traders went into the ECB decision with the plan to sell into EUR/USD rallies, which happened right on our 1.0270-80 sell order as the post ECB price action played out precisely as scripted.

Rates traders were split going into the ECB, so when the 50bp decision was announced, the market immediately priced an excellent probability for 75bp in September, which boosted the euro. However, market sentiment changed towards the dovish side when Lagarde noted that the previous guidance for 50bp was 'not applicable' any more, driving EUR/USD back to below where it had started. 


Gold is higher on softer U.S. yields after weaker U.S. data, especially on the employment claims, marginally increased the odds of a Fed pause. Ultimately, we expect gold to trend higher against the backdrop of slowing growth, rising recession risks, and as the Fed shifts back towards a more accommodative policy stance. 

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