Stocks search for direction ahead of tomorrow’s US jobs data

European stock markets are a bit higher this morning but lacking any serious direction following Wednesday’s pause for breath. The FTSE 100 rallied 2.57% on Tuesday, pared gains by falling 0.5% yesterday and is underperforming this morning with a slight decline. Shell dragged on the blue chips with a decline of more than 3.5% as it warned on third quarter profits due to lower refining margins. Frankfurt and Paris both firmer, just, after Asian stocks broadly rallied overnight. Sentiment remains hardly bullish – Mon/Tue a short-squeeze relief that seems to already have run out of momentum. The one to watch will be the rally that is chased higher aggressively; that is the one that will precede the big capitulation.

Yesterday saw global stocks eased back after a couple of days of gains; Wall Street a little lighter after its best two-day rally since 2020. The 0.2% drop in the S&P 500 was modest in comparison with the blockbuster bounce of Monday and Tuesday – markets pausing as they assess the macro-economic outlook and whether central banks are about to turn tail in their inflation fight.

“There is a school of thought that states it is prudent for the Fed to pause given a number of higher frequency data point to the Fed having halted, and reversed, price appreciation ... However, it seems unlikely that the Fed is going to be this forward looking.” - JPM.

Too soon? Atlanta Fed president Raphael Bostic said much the same: "The considerable speculation already that the Fed could begin lowering rates in 2023 if economic activity slows and the rate of inflation starts to fall; I would say: not so fast."

Tuesday’s sharp decline in the JOLTS number – the number of job openings in the US – has been taken as a sign of softening in the labour market that will make the Fed sit up and look at the pace of hikes. Openings were down 1.1m in the month, but it’s far from clear whether this is enough for the Fed to stop – all the indicators so far point to a far higher bar for the Fed to pivot. Pantheon says plunging job openings will get the Fed to ease back. There are two more JOLTS reports before the Dec FOMC meeting “and if they look like August’s the Fed will not be hiking by 50bp or more at the final meeting of the year”. I dunno...I tend to think it will keep on keeping on until something really breaks. NFP report tomorrow, CPI next week the big tells. Not so fast.

Today sees the weekly US unemployment claims data, ECB meeting minutes and a slew of Fed speakers on the wires; plus MPC member Haskell and BoC governor Macklem.

OPEC and allies went ahead with a huge 2m bpd cut to quotas – in reality this is amounts to something like 700k-1m bpd worth of actual barrels removed from the market. The White House is not happy and accused OPEC of aligning with Russia. It’s a bit of a humiliation for the WH after months of SPR releases and an attempt at arm-twisting…Brent spot prices this morning just eased back a touch from the 50-day line – we await to see whether the rally out of the channel can lead to further gains. Looking for a close above the 50-day; MACD has already seen a bullish crossover. As I have been saying here for some time, the price was not reflective of the fundamentals in the market and we could now look for a break to $100 as long as this rally holds.

Sterling retreated yesterday after hitting a two-week high as risk sentiment came off the boil. Long-term trend resistance offering resistance. UK 10yr gilt yields back above 4% this morning. The euro also pulled back yesterday as the dollar caught some bid.