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Risk Assets Higher As FED Starts Giving Dovish Signals on Economy

Posted Monday, January 9, 2023 by
Skerdian Meta • 2 min read

Traders were trying to decide last week whether to turn bearish or bullish on the USD, which meant that risk sentiment would go the other way, together with risk assets. But, it seems like the US ISM services report gave the final verdict, at least until Jerome Powell comes up to speak tomorrow and the US CPi inflation report is released later in the week.

The ISM services sector survey is one of the best forward-looking indicators out there and Friday’s edition plunged to 49.6 points from 56.5 points in November, which was much worse than the economist consensus of 55.0. Even worse, the forward-looking new orders component in the survey fell to almost 45 points, which will drag this sector down in the coming months. That sent the USD crashing lower and FED members popped right out after that, confirming that the economy was slowing.

Fed’s Bostic Commenting

The US economy is ‘definitely slowing’
How the economy evolves will shape what the Fed has to do
Housing and other interest rate sectors have seen significant slowing, business leaders see labor markets easing
Still not easy to find workers but it’s easier than it was
Demand-supply imbalance is not changing rapidly, process will take some time
Expect US GDP at 1% for 2023
Signs that things are moving in a positive direction on inflation
The US has a lot of momentum to absorb Fed policy and avoid a significant contraction

These comments lean hard into the idea of a soft landing.

The ADP employment, JOLTS Job Openings and non-farm employment numbers were decent earlier last week, but earnings are cooling off, as the sub-components indicated. Once again, FED members popped out to confirm that wages are slowing, which is a sign that the FED is pivoting and will stop with rate hikes soon.

Comments Fed Governor Lisa Cook

Recent data suggest worker compensation is starting to decelerate
Inflation ‘far too high’ and ‘of great concern’ despite recent encouraging signs
Market rent data suggest housing inflation to slow
Cites improving supply chains and anchored inflation expectations
Fed needs to further study inflation dynamics
Doesn’t comment directly on rates

Fed Governor Lisa Cook is participating in a panel entitled “Inflation – What Lies Ahead” hosted by the American Finance Association at the 2023 Allied Social Science Associations annual meeting.