Hawkish Fed, dovish BOE and Norges, signs of labor weakness, bitcoin resilience

Central bank paths are diverging and that suggests the recessions are here and that FX volatility will remain elevated. The post-Fed hangover continues to keep pressure on US stocks as the impact from the first round of hikes is finally being felt. Stocks aren’t going to have a painful death here, but they will soften until markets price in a little more Fed hawkishness. ​

Labor data

The focus in the US shifts back to any data about the labor market and especially inflation. ​ This morning, weekly jobless claims edged lower as it remains stuck near historic lows. ​ Everyone is expecting the economy to quickly weaken, but the labor market has other plans. ​ Jobless claims dipped to 217,000 last week, a little better than the 220,000 estimate. ​ Continuing claims climbed to 1.49 million, which is the highest level since March.

The Challenger, Gray & Christmas, Inc. report showed job cut announcements increased 48% from a year ago. Challenger’s Senior VP noted, “We are beginning to see more job cut activity in the fourth quarter, historically when the bulk of cuts occur, as companies finalize budgets and plans.”

It appears that we are finally starting to see more signs of labor market weakness, which means we might be a couple of months away from seeing job losses with the nonfarm payroll report. If the labor market can cool quickly, the Fed might be done tightening in February, which means rates might ultimately stop at 5%.

BOE/Norges

European central banks are nearing the end of their tightening cycles. The BOE delivered a dovish hike as they clearly signaled they shouldn’t raise rates too far. ​ The BOE’s 75 basis point rate increase was the largest hike in 33 years. ​ The rate hike decision was not unanimous as Swati Dhingra voted for a half-point rise, and Silvana Tenreyro supported a quarter-point increase. The BOE’s outlook was the polar opposite from what we got from the Fed. ​ The BOE said that we could see a two-year recession if the market follows the market curve. ​ The BOE believes that markets are being a bit aggressive in pricing their rate path.

The Norges Bank downshifted their rate hiking cycle to a 25 bp pace. ​ They highlighted that there are signs that some areas of the economy are cooling down, and prospects for lower-than-expected freight and energy prices may curb inflation ahead. It looks like they are getting close to pausing which could suggest the krone might be vulnerable to further selling pressure. ​

Crypto

Bitcoin traders are saying “What, me worry?” A hawkish Fed is triggering a de-risking moment on Wall Street, yet bitcoin refuses to give up the $20,00 level. ​ Stocks are down significantly post-Fed yet bitcoin continues to hover above the $20,000 level. ​ Bitcoin might eventually break here, but this resilience that is being displayed should show markets how confident long-term hodlers remain.

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