The eurozone bank show ain't over

THE EUROZONE BANK SHOW AIN'T OVER (1127 EST/1627 GMT)

Euro zone banks are on a roll with their index (.SX7E) hitting fresh 11-month highs four times over the past 5 days.

Only Tuesday, a record profit at UniCredit UCG provided the latest reminder of how the industry could benefit further now that the region looks to have dodged a 2023 recession and the ECB cracks on with more rate hikes.

But the show isn't over.

Heavyweights Banco Santander SAN, ING INGA, Nordea NDA_FI and Deutsche Bank DBK release their numbers on Thursday and investors will be watching closely for any fresh signs the sector has turned a corner after suffering from many years of central banks' ultra-loose policies.

Those four weigh a combined 34% on the Euro STOXX banks index and could also prove decisive in allowing it to climb to new highs, should the risk-on mood carry on.

The index needs another 3.6 percentage points to reach 2018 levels and at the current pace of gains it would need only three or four days to do so.

(Danilo Masoni)

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WEDNESDAY DATA: SOMETHING FOR THE FED TO CHEW ON (1117 EST/1617 GMT)

Investors began what may well be a roller coaster day for the stock market - a little thing called the Fed, heard of it? - with a smattering of economic indicators, which offered a few unwelcome surprises.

First, private employers added 106,000 workers in January, according to payrolls processor ADP's National Employment index (NEI) (USADP=ECI).

The number marks a 58.1% drop from the revised November figure, and fell a mile short of the 178,000 consensus.

But lest we prematurely announce any easing in the tight labor market - which has kept wage inflation hot - ADP says much of the drop in private sector job adds could be blamed on the weather.

"In January, we saw the impact of weather-related disruptions on employment during our reference week,” writes ADP's chief economist Nela Richardson. "Hiring was stronger during other weeks of the month, in line with the strength we saw late last year."

The Labor Department's more comprehensive January employment report due Friday is expected to show a more robust 190,000 private sector job adds, which would still mark a monthly drop of 13.6%.

Here's a look at the extent to which ADP is (or is not) an accurate predictor of the Labor Department's private payrolls number:

On the flipside, job openings in the U.S. unexpectedly jumped by 5.5% to 11.01 million in December - not exactly a sign of easing labor market conditions.

Economists projected a 2% drop in vacant positions.

The Labor Department's job openings and labor turnover survey (JOLTS) (USJOLT=ECI), which measures churn in the jobs market, also showed new hires and fires ticking higher, with the quit rate holding steady.

Taken together, job openings outpaced new hires by 4.8 million, a 25% increase over November.

"The Fed isn't going to like this,” writes Andrew Crapuchettes, CEO at RedBalloon. "11 million job openings is the new normal in this tight labor market. The Fed and everyone else will just have to get used to it."

Next, U.S. factory activity contracted at a steeper-than-expected rate in the first month of 2023.

The Institute for Supply Management's (ISM) manufacturing purchasing managers' index (PMI) shed one full point to land at 47.4, south of the even 48 predicted by the Street.

A PMI print below 50 signifies a monthly reduction in activity.

New orders plunged and prices paid showed a much shallower contraction than anticipated - yet another sign that inflation is going to take its sweet time descending to the Fed's average 2% target.

On the bright side, the employment component returned to expansion territory.

Noting that the headline number is at its "lowest level since the coronavirus pandemic recovery began," Timothy Fiore, chair of ISM's Manufacturing Survey Committee added that participants are "reporting softening new order rates over the previous nine months, the January composite index reading reflects companies slowing outputs to better match demand in the first half of 2023 and prepare for growth in the second half of the year."

Not to be outdone, S&P Global also issued its final take on January PMI (USMPMF=ECI), which landed at 46.9, just a hair above its initial flash take released a few weeks ago.

"Excess capacity is developing, which has in turn meant companies have scaled back their hiring and purchasing," says Chris Williamson, chief business economist at S&P Global.

Additionally, Williamson says "a slight uptick in the survey’s input cost and selling price gauges in January suggests that the road to lower inflation could be bumpier than previously anticipated."

Here's a look at how closely the dueling PMIs agree:

And finally, expenditures on U.S. construction projects surprised analysts by dropping 0.4% in December, according to the Commerce Department.

Both privately and publicly funded construction spending fell by 0.4%, with a 0.3% drop in residential reflecting ongoing softening in the beleaguered housing market.

Stocks opened red and have gained downward momentum as the morning has progressed, with the blue-chip Dow suffering the biggest percentage drop.

Economically sensitive chips SOX and transports DJT are providing rare glimpses of green.

(Stephen Culp)

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U.S. STOCKS MOSTLY RED AHEAD OF FED (1017 EST/1517 GMT)

The main U.S. stock indexes are lower early on Wednesday as investors cautiously await the Federal Reserve's decision on interest rates later in the day, while chipmaker Advanced Micro Devices climbed on an upbeat outlook.

According to the CME FedWatch Tool, a 25 basis point hike at the conclusion of FOMC meeting is a done deal, at 99.3%.

Stocks are under pressure, with the main indexes lower. The DJI DJI is off more than 0.5%, while the Nasdaq IXIC is just below flat. Most S&P 500 sectors are red with materials S5MATR taking the biggest hit. Healthcare S5HLTH and tech S5INFT are slightly green.

Transports DJT are showing strength, up more than 1%, and the chip index SOX, in the wake of AMD's report, is up more than 2%.

The S&P 500 just enjoyed its biggest January rise since 2019, while the Nasdaq IXIC had its best January gain since 2001.

In a note, Howard Silverblatt, senior index analyst at S&P DJ Indices, said "As for the January barometer of 'so goes January, so goes the year,' it has been correct 71.28% of the time since 1929 (and it worked in 2022: January was down, as was the year), as this January has posted a 6.18% gain."

Silverblatt added, "The first day indicator is a coin-toss, correct 50% of the time (did not work in 2022, as the first day closed at a closing high, and it was the highest close of the year), with the first day this year down 0.40% - so one of the two are going to be wrong."

Here is a snapshot of where market stood around 45 minutes into the trading day:

(Terence Gabriel, Sinéad Carew)

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S&P 500 INDEX: GOLDEN CROSS NEARS (0900 EST/1400 GMT)

The spread between the S&P 500 index's SPX rising 50-day moving average (DMA) and its descending 200-DMA ended Tuesday at just over -8 points:

That's the tightest reading since March 14, 2022. At that time, however, the 50-DMA had broken below the 200-DMA, and these closely watched moving averages were diverging.

Given that they are now converging at just over 4 points per session, there is potential for a golden cross to occur over the next few days. Such a development can potentially suggest a major advance is underway.

The last such cross occurred in the wake of the pandemic crash on July 9, 2020. That golden cross occurred 75 trading days after the March 23, 2020 SPX low. This time, Tuesday marked the 74th trading day since the SPX's October 13, 2022 low, so there will a close symmetry in time should the cross happen by the week's end.

From the July 2020 cross, the SPX advanced more than 50% into its early-January 2022 record high.

Meanwhile, the SPX, which closed at 4,076.50 on Tuesday, faces resistance at four distinct September 2022-January 2023 highs that run from 4,094.21 to 4,119.28.

There is support around 4,015 (233-DMA/January 30th high) then 3,975 (broken resistance line from January 2022 high). The 50- and 200-DMA's should be down around the 3,952-3,948 area on Wednesday.

(Terence Gabriel)

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