Mid-Market Update: Powell Part Deux, Labor Market still looks hot after ADP & JOLTS, Stocks struggle, Oil remains heavy, Gold wavers, Bitcoin softens

US stocks struggled to find direction after another round of labor data suggests this market will remain tight and on Fed Chair Powell’s second day of testimony on Capitol Hill.  Powell did not deliver any surprises, repeating that the Fed may need to speed up the pace of its interest rate increases if necessary.  The Fed will remain data-dependent and right now you can make a strong argument that the Fed needs to take rates to 6.00%. 

It appears that Wall Street is getting ready for a recession. How bad of a recession will depend on what happens with these next few inflation reports. 

ADP/JOLTS

A lot of traders don’t pay attention to the ADP employment change report, but this one had many interesting points.  Private payrolls supported the argument of a tight labor market after 242,000 jobs were created in February, much more than the 200,000 consensus estimate and the upwardly revised prior reading of 119,000 jobs.  It seems policy is starting to feel restrictive for small businesses as they lost 61,000 jobs.  Looking at sectors, construction and professional/business services lost jobs, which doesn’t bode well for a quick labor market slowdown. 

The January JOLTS report reminded us that employers are still struggling filling vacancies even as job openings cooled to 10.82 million from a month ago.  The labor market lost 400,000 jobs but it still remains hot and this should support the case for the Fed to reaccelerate its tightening pace. 

Oil

Crude prices can’t shake off fears that the Fed is going to send the US economy into a bad recession.  A small EIA crude oil inventory draw wasn’t enough of a catalyst to help oil prices stabilize.  The amount of crude demand uncertainty over the short-term is keeping oil prices heavy.  WTI crude looks like it will be stuck between the mid-$70s and the low $80s until we have a better idea on what type of recession the Fed will trigger. 

Over the next seven days, energy traders will have a chance to see the latest jobs and inflation reports, which means we could have the market confidently pricing in a slightly worse-than mild recession. Dollar dominance might be hard to shake, so commodity prices broadly might struggle here. 

The EIA crude oil inventory report posted the first draw of the year.  A decline of 1.7 million barrels was compared to an expected small build of 120,000 barrels.  Crude oil and gasoline demand improved, while distillates softened.

Until we see clear signs of China’s recovery gaining steam, oil prices look like they want to stay heavy. 

Gold

Gold prices are little changed but still close to key support levels.  Gold remained anchored after day two of Powell and economic data that supports a tight labor market. Gold traders are waiting for the nonfarm payroll report on Friday before we see any major repositioning.  The bond market selloff appears to be here to stay a little while longer and that could deter some flows into bullion.  The 2-year Treasury looks like it is trying to find a home above the 5.00% level and that could keep the selling pressure heading towards gold’s way.    

Crypto

Bitcoin continues to waver around a three-week low as Wall Street tries to get a handle on what the Fed’s rate hiking campaign will do to the economy.  The news across the cryptoverse is not spurring any reasons to buy this dip.  According to CoinDesk, JPMorgan reportedly is ending its relationship with Gemini. Crypto adoption is definitely taking a big hit here as too many companies are becoming hesitant with how they move forward getting involved in this space.

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