{"id":190220,"date":"2023-05-11T12:30:00","date_gmt":"2023-05-11T16:30:00","guid":{"rendered":"https:\/\/ibkrcampus.com\/?p=190220"},"modified":"2023-05-11T12:38:52","modified_gmt":"2023-05-11T16:38:52","slug":"layoffs-rise-significantly-as-markets-brace-for-recession-may-11-2023","status":"publish","type":"post","link":"https:\/\/www.interactivebrokers.com\/campus\/traders-insight\/securities\/macro\/layoffs-rise-significantly-as-markets-brace-for-recession-may-11-2023\/","title":{"rendered":"Layoffs Rise Significantly as Markets Brace for Recession: May. 11, 2023"},"content":{"rendered":"\n

A significant increase in layoffs and a renewed run on deposits at PacWest Bancorp are triggering a broad equity market selloff this morning. At the same time, this morning\u2019s Producer Price Index (PPI) release depicting slowing headline inflation but persistent services price increases has failed to boost investor sentiment.<\/p>\n\n\n\n

As companies look to sustain profit margins amidst a looming recession, initial unemployment claims rose sharply to 264,000 for the week ended May 6. It was the highest level in nineteen months and above the 245,000 consensus expectation. The number of weekly layoffs surpassed the previous week\u2019s level of 242,000. Continuing claims have also been rising, hitting 1.813 million for the week ended April 29 and up from 1.801 million during the preceding week.<\/p>\n\n\n\n

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Investors this morning are also assessing news that PacWest\u2019s deposits recently declined 9.5% after the troubled bank said it is exploring options such as selling assets. PacWest has also pledged more assets to the Federal Reserve to shore up its borrowing capacity. The shares are down more than 40% this month and the latest disturbing news from PacWest pulled down share prices of other regional banks such as Western Alliance Bancorp, KeyCorp and Zions Bancorp between 2.4% and 8% as investors fear that banking troubles may spread to other financial institutions.<\/p>\n\n\n\n

Today\u2019s PPI data failed to support sentiment the way yesterday\u2019s Consumer Price Index did<\/a>. The PPI shows that wholesale prices rose 0.2% month-over-month (m\/m) and 2.3% year-over-year (y\/y) during April, lighter than expectations calling for 0.3% and 2.4% increases, respectively. The core PPI, which excludes food, energy and trade, rose 0.2% m\/m and 2.3% y\/y, the former coming in as expected while the latter came in lighter by a tenth of a percent. Throughout this economic cycle, inflation for services has been persistent and the PPI index shows this trend is continuing, with the services category propelling wholesale prices up the most during the period while goods moved up to a lesser degree. <\/p>\n\n\n\n

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Those same fears of recession are weighing on bond yields and supporting calls for a Fed pause while helping to minimize the impact of the market selloff on the interest-rate sensitive Nasdaq Composite Index, which is down only 0.1% while the S&P 500 Index is down 0.6% near an important support level at 4100.<\/strong><\/p>\n<\/blockquote>\n\n\n\n

Markets are responding negatively this morning as regional bank concerns alongside a spike in initial unemployment claims overshadow progress on inflation. Cyclical segments of the equity market are underperforming as recession fears mount, with the Dow Jones Industrial Average down 1.1%. Those same fears of recession are weighing on bond yields and supporting calls for a Fed pause while helping to minimize the impact of the market selloff on the interest-rate sensitive Nasdaq Composite Index, which is down only 0.1% while the S&P 500 Index is down 0.6% near an important support level at 4100. While bulls are looking to engineer another massive reversal like the one we experienced yesterday off of the 4100 support level, yields are falling across the curve with the 2- and 10-year maturity yields down 7 basis points (bps) each to 3.82% and 3.37%, respectively. The 1-month yield is unchanged, however, as bond investors look ahead to risks regarding the debt ceiling in June. Lower yields in Asia on the back of slower-than-expected inflation data from China are pushing the dollar higher, with the Dollar Index up 64 bps to 102.12. Recession risks and fears of a global economic slowdown are weighing on energy markets amidst an uncertain demand outlook with WTI crude oil declining 2.3% to $70.91 per barrel. Weaker data from China and rising layoffs in the U.S. are to blame. <\/p>\n\n\n\n

Corporations, meanwhile, are continuing to report strong demand for certain forms of entertainment as spending on consumer goods weakens. The following earnings results illustrate this trend:<\/p>\n\n\n\n