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By: John Kicklighter, Head of Market Research
Talking Points:
With the National Day of Mourning Thursday in the United States, traders looking for volatility and investors watching for the restoration of significant trends should be mindful of the dynamics that are navigating. We were already dealing with a collective struggle to commit to a dominant fundamental influence….for better or worse, bullish or bearish interest. Interest rate path, growth potential, trade war and other active or potential matters will likely struggle to catch traction in this unusual waver in participation by the largest market in the world. That said, don’t write it off as a possibility; and consider volatility just as potent a threat – if not more so. But what will be the major catalyst for market activity?
S&P 500 Average Performance and Volume By Calendar Week
Source: John Kicklighter, Bloomberg
Working chronologically over the coming week, there first of the top three events on my radar through the period will China’s foreign exchange reserves for December due on Tuesday morning. The exact time for the release has not be given, which usually dampens the market-moving potential of the report. Furthermore, there are a few adjacent economic releases due the day before – including Hong Kong’s FX reserves and Caixin’s December PMIs – but the world doesn’t usually take Chinese data at face value anyways.
The real weight of the data is its reflection on China with its economic struggles as well the pressure through the revived trade confrontation with the United States. The assumption is that this report will be distinctly non-descript so as not to give groups like the SAFE and PBOC more difficulty in keeping balance. If there is any negative surprise, however, it will escape no one’s notice.
Calendar of Major Global Macro Events Scheduled for Week
Source: John Kicklighter, StoneX
Due the same day – though in a latter session – as the Chinese reserves update, we have the ISM’s service sector activity report for the United States. I consider this a strong and timely proxy for the official quarterly GDP release that is otherwise hamstrung by its significant delay of release - due January 30th. The S&P Global / HCOB PMIs have already crossed the wires with the strongest reading since October 2021. This is by-far the biggest component of output in the US economy and largest source of jobs for the country.
Seeing that kind of headline figure helps keep sentiment aloft on US indices that hold fairly close to record highs despite a growing list of concerns about the value inherent in high floats. While the ISM and S&P Global figures have a notable level of correlation between them, the ISM has bene notably lagging. A significant short fall with this month’s reading (particularly if it is contextualized by component data) can cause real concern for those expecting/hoping a sustained economic performance.
Chart of S&P 500 Overlaid with ISM Manufacturing and Services PMI (Monthly)
Source: John Kicklighter, TradingView, ISM
Finally, a top three event risk calendar for week two of the calendar year would not be complete without recognition of December US payrolls and the accompanying labor data. This is one of the most recognizable macro indicators across the globe. That alone will generate potential for impact should the data offer up any surprises. It’s worth noting that this run of data will follow the drop in liquidity owing to the market closure in recognition of former President Carter. That and the backdrop of the weekend liquidity drain will likely work against any shock volatility making meaningful effort to generate trend. Nevertheless, a sharp response shouldn’t be overlooked.
What’s more, the data and its details can fuel consideration of trends that carry forward to when markets have more liquidity and traction – which is near term rather than far into the future. While NFPs is the first data point that will be registered by surface level observers and traders; recall that the jobless rate is the actual dual mandate objective, that wages have a strong influence on inflation and participation levels can speak to the absolute need for capital as stimulus runs dry and lending costs remain buoyant.
Chart of Change in US Nonfarm Payrolls with 'Surprise' Relative to Economist Consensus Estimates (Monthly)
Source: John Kicklighter, US Bureau of Labor Statistics
-- Written by John Kicklighter, Global Head of Content
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