US Close: Mixed Session, US Data, Yields rally, Lira weakens

US stocks were mixed as some traders found value in the heavily beaten-up tech sector, while some were hesitant to put on massive positions before Friday’s nonfarm payroll report. The big question for many traders’ is how high yields will go up and at one point will it become a problem for the economy.  Most of Wall Street has an upbeat outlook for 2022, but the risks of a Fed policy mistake, US geopolitical tensions with both Russia and China, and inflationary pressures, pose serious risks to the stock market later in the year.

US data

The last warm-up labor market act before Friday’s nonfarm payroll main event showed the positive trend in the labor market continues.  Initial jobless claims edged higher but does not disrupt the overall positive trend that is clearly happening in the labor market. The 7,000 initial claims increase from the previous week to 207,000 still supports the narrative that the labor market remains very tight.  Continuing claims rose more than expected to 1.754 million, higher than the 1.678 million estimate and 1.718 million revised prior.    

The November trade data showed the deficit widened as imports jumped to a record, while exports lagged.  The trade data painted a clear pre-Omicron picture that the US demand for goods was very strong and that Americans had the travel bug. 

The ISM Services report eased from record levels to the surprise of no one as the omicron outbreak and hiring issues drove the deceleration in service sector activity.   The headline reading fell from 69.1 to 62.0, but still remains comfortably in expansion territory.  The components mostly reversed lower except for prices paid and new export orders. 

FX

A key focus for FX traders in 2022 will be the Turkish wall of worry that seems to consistently grow.  President Erdogan has an uphill battle for the general election in June 2023 and that means we should not expect him to abandon his demands for the central bank to maintain an unorthodox monetary policy strategy. Every Turkish economic data point easily explains why public support has completely abandoned him.  Turkish inflation is at 36%, labor participation is an abysmal 52.0%, foreign investors are skeptical of investing in Ankara and are scaling back their exposure and rising national security concerns.  

Today’s reserve data showed Turkey’s central bank official reserves took a pause in collapsing steadying at $72.6 billion.  The lira’s recent rebound is slowly being faded and that could remain the trade. 

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