Stocks soften as earnings and US data still support more Fed rate hikes

US stocks are declining as earnings and economic evidence suggest wage growth is still too high and will keep inflation sticky. ​ Earnings alone are dragging stocks down as Tesla deals with its margin problem, American Express prepares for loan losses, and after TSMC’s disappointing outlook. ​ Wall Street is staring at a list of Fed speakers that will undoubtedly have to stick to the script that inflation is too high and that they can continue with their rate hiking cycle since banking turmoil has yet to intensify. ​ ​

US Data

The economy is weakening, some parts more than others. ​ The Philadelphia Fed business outlook was much worse than the Empire State survey and paints a picture that manufacturing activity is quite not ready to stabilize just yet. ​ The rebound in China will eventually filter through here, but for now supply chains should improve going forward.

Jobless claims continue their steady but slow rise. ​ The labor market is softening but nowhere near levels that will alleviate wage pressures, which means inflationary pressures will remain strong. ​ ​ The number of Americans filing new claims for unemployment benefits rose 5,000 to 245,000. We will soon see new cycle highs as corporate America has steadily announced more layoffs, but the lag in when the layoffs will happen will keep wage pressures strong throughout the newt few months. ​ ​

Fed

Yesterday, Fed’s Williams noted that inflation is still too high and that they will use their monetary policy tools to restore price stability. Today, Fed’s Mester noted that inflation is still too high, proving to be stubborn. ​ She is seeing some moderation in the tight labor market and that bank stress could tighten credit and cool the economy. ​

RBA

The RBA Review will have it start looking like its major peers, embracing fewer meetings and post-rate decision press conferences. ​ Achieving full employment will now have equal weighting with defeating inflation. ​ A new board will take full effect next July, meeting eight times a year, down from the 11 times they currently meet.

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