“Chaotic.”

That’s how JPMorgan analysts led by Marko Kolanovic described last week’s price action, torn as it was between conflicting macro signals, crucial earnings reports from America’s tech giants and key policy decisions from the ECB, the BoE and, of course, the Fed.

In a Monday note, Kolanovic mentioned Jerome Powell’s casual dismissal of the recent easing in financial conditions. The market, Marko said, took Powell’s disinclination to engage aggressively on the issue “as a green light to buy crypto, meme stocks and other speculative parts of equities… despite poor corporate earnings results.”

Remember: Powell could’ve just cited the December meeting minutes when pressed on whether the recent rally in stocks and bonds “makes the Fed’s job harder.” The account of last year’s final policy gathering was a scripted response to any and all questions about the nexus between markets, financial conditions and the inflation fight. In all likelihood, Powell and his colleagues will reiterate that message this week, particularly in light of the jobs beat.

On Monday, Raphael Bostic said data like the January NFP report will “probably mean we have to do a little more work.” “I would expect that would translate into us raising interest rates more than I have projected right now,” he told Bloomberg, in a phone interview. Terminal rate pricing moved higher.

JPMorgan said markets seem to view central banks as “doves in hawks’ clothing” currently, a mistake if, as the bank put it, “risks are shifting in the direction of higher DM terminal rates.” Policymakers will likely be keen to dispense with any misguided market notions in order to guard against a resumption of the wealth effect and the read-through of that for services sector inflation. Bostic’s Monday remarks were probably a preview of what’s coming in that regard.

In all, it’s fair to describe JPMorgan’s assessment as cautious, which is appropriate given strong crosscurrents. The bank took a less-than-generous approach to the US jobs blowout, which Kolanovic suggested “pour[ed] cold water over the Goldilocks/soft landing narrative.” The bank also warned that ongoing US labor market strength could compel market participants to “start questioning the assumption that the Fed will ease policy this year.”

Note that since last Thursday, markets have removed some 20bps of implied cuts from the back half of this year. The Fed would ideally like to squeeze the M3Z3 inversion out entirely. A Fed that sees no disinflation developing yet in the key “services ex-housing” spending categories is a Fed that needs to push rate cut expectations into 2024.

As for corporates, JPMorgan delivered a rather blunt assessment on Monday. “Companies face the difficult choice of either laying people off or seeing margins worsen,” the bank said, adding that,

Thus far, job losses have been more prevalent in the tech industry, but are ticking up in other industries as well. With headline inflation rolling over even as wage inflation stays relatively high, we continue to be on a path toward worsening margins, which will eventually produce layoffs. So disinflation in this situation will not be anything to celebrate, as it leaves rates in an even more restrictive state with central banks slow to change course unless a risk event forces a reset.