February 2, 2023
Catalysts ahead include mega-cap earnings this afternoon and tomorrow’s Jobs Report, all of which will likely have a material impact on markets. After a weaker-than-expected start to Q4 earnings season, improved week-to-date results have temporarily revived the soft-landing narrative. Cost cutting will still be the most relevant theme for mega-cap results this afternoon. The low-probability soft-landing scenario requires that companies protect margins, while labor markets remain healthy but not too healthy. Consensus is looking for payroll additions of +185,000, down from +223,000 last month. Wages will be an important part of tomorrow’s Jobs Report with consensus expecting a +0.3% monthly increase and a 4.3% annual increase. Wages plus hours worked gives you a total compensation number and the average workweek has been declining recently. Consensus is looking for an unchanged workweek totaling 34.3 hours.
Signal: The 5/10 yield curve inversion has narrowed to -8.5bp overnight. Sustaining levels above resistance at -9bp would be an encouraging development. Higher equity levels require easier monetary conditions and a positively sloped 5/10 curve should proceed a Fed pivot by 1-3 months