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Futures Flat Ahead Of CPI Data

Futures Flat Ahead Of CPI Data

US stock futures traded in a very tight range on Wednesday as investors held off on making big trades ahead…

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Futures Flat Ahead Of CPI Data

US stock futures traded in a very tight range on Wednesday as investors held off on making big trades ahead of today's CPI print which is expected to provide clues on the Federal Reserve’s outlook for rate hikes. Contracts on the S&P 500 were up 0.2% at 7:45am ET while Nasdaq futures were fractionally in the red. The Bloomberg Dollar Spot Index was little changed, as Treasury yields edged higher across the curve, mirroring moves in European bond markets. Oil and gold rose. Bitcoin was flat after a four-day gain, its longest streak in three weeks.

Among notable movers in premarket trading, Bed Bath & Beyond climbed 2.6% after the troubled retailer raised $48.5 million through a share sale as it seeks cash to avert bankruptcy. Nutex Health jumped as much as 34% after the health care management company said that it has entered into a $100 million pre-paid advance agreement with Yorkville Advisors Global. Here are some other notable premarket movers:

  • MongoDB (shares rise 3.4%, while Confluent gains 4.8%, after both are upgraded to overweight from equal-weight at Morgan Stanley, as the broker expects faster and increased expenditure on the transition of companies to the public cloud.
  • National Instruments gains 6.5% after Bloomberg reported, citing people familiar, that Emerson Electric (EMR) is in advanced talks to acquire the maker of measurement systems.
  • Shares in midcap financial advisory firms may be in focus as Morgan Stanley sees a rebound for the sector pushed out to 2024, in a note upgrading Evercore and Lazard and cutting Jefferies Evercore was also raised at UBS on Tuesday.
  • Keep an eye on Becton Dickinson (BDX) as it was raised to overweight from sector weight at KeyBanc Capital, which says it believes the medical- technology company can finally break out of its trading range of the past five years given reasonable valuation and focus on meeting long-term financial targets.

With stocks stuck in a 30 point range around 4,120 for much of April, traders are now looking at today's CPI print to break the stalemate with the next clue on the path of Fed rate hikes with economists expecting to see a further softening in price pressures as CPI shows a slowdown in headline CPI to 5.1% in March from 6.0% a year ago (our full preview is here); while a stronger reading could boost the US currency, strategists expect that concerns over the negative economic impact from tighter credit conditions will limit any significant gains in the near term. Overnight-indexed swaps are pricing in a roughly 75% possibility of a 25 basis point hike in May, followed by a cut of a similar size as early as September.

“Markets have recently taken the view that the Fed needs to ensure stability in the financial system. That means easing back on rate hikes which could topple the economy,” said Russ Mould, investment director at AJ Bell. “However, the reason why rates have been going up so fast over the past 12 months is down to rising inflation, so today’s update will still matter to the Fed.”

As we first reported yesterday, Goldman trader John Flood offered guidelines for what investors can expect from the market when the data appear.

“Markets are super-sensitive to any indication that the Fed will stay aggressive in its inflation fighting stance, and the worry is that core inflation may be proving harder to bring down more quickly, which could harden policymakers’ resolve,” said Susannah Streeter, head of money and markets at Hargreaves Lansdown.

Meanwhile, Goldman Sachs strategists said equity volatility is likely to increase in the second quarter amid slowing growth, elevated macro uncertainty and market stress. Focus later this week will turn to the start of the first-quarter reporting season for Corporate America. One measure shows that equities have seen the biggest pre-earnings rally since early 2009 even as first-quarter profits are forecast to drop 8%.

European stocks are on course for a third consecutive gain with the Stoxx 600 touching a five-week high. The regional benchmark is up 0.2% with real estate, media and utilities the best-performing sectors. The FTSE 100 has outperformed with gains of 0.6% led by AstraZeneca and Shell. Here are some of the most notable premarket movers:

  • Volvo gained as much as 9.6%, the most intraday since March 2020, after first-quarter preliminary results came in ahead of expectations, with the Swedish truck and bus maker beating analyst views on sales, operating income and margins.
  • Grifols jumped as much as 6.9% after Morgan Stanley upgraded to overweight with the threshold for outperformance now low because of “depressed” valuation and sentiment on the stock.
  • Two big sell orders for TUI rights put pressure on the rights’ pricing and shares, which fell as much as 4.4% in Frankfurt.
  • Merck fell as much as 6.4% after the pharmaceutical company said the FDA has placed a partial clinical hold on the initiation of new patients on Evobrutinib and patients with less than 70 days exposure to study medication in the US.
  • French re-insurer Scor rose as much as 3.9% after the company updated its 2023 targets under the new IFRS 17 accounting standard, reassuring investors about its operational turnaround and dividend prospects.
  • L’Oreal fell as much as 1.6% after Deutsche Bank cut its rating to hold from buy, saying the share price now fully takes account of the French cosmetics firms’ defensive characteristics and the reopening of the Chinese economy.

Earlier in the session, Asian stocks fluctuated in a narrow range as investors awaited US inflation data. The MSCI Asia Pacific Index swung between gains and losses as communication shares fell and material stocks rose. Japan’s stock market was the region’s best performer, extending gains after media reports on Tuesday said Warren Buffett is turning his focus back to the nation’s equities. “Yesterday’s news report on Buffett was viewed positively,” said Tomo Kinoshita, a strategist at Invesco Asset Management Japan. In addition, the yen’s depreciation and expectations that the Bank of Japan will keep its current policy are supporting Japanese equities, Kinoshita added. The Topix Index rose 0.8% to 2,006.92 as of market close Tokyo time, while the Nikkei advanced 0.6% to 28,082.70. Today’s gains followed an advance in Japan stocks on Tuesday, after the Nikkei reported Warren Buffett is weighing investment beyond his stakes in Japanese trading houses. Trading companies including Mitsui & Co and Mitsubishi Corp were among the main contributors to the Topix’s gain. Out of 2,158 stocks in the index, 1,523 rose and 526 fell, while 109 were unchanged.

Benchmarks also advanced in Australia and South Korea ahead of the US inflation figures that could serve as a crucial factor for the Fed’s next policy meeting. Conditions including credit tightening from stricter bank regulations, higher crude oil prices and inflation are boosting the risk of a US recession, according to JPMorgan strategist Rie Nishihara. Read: Fed Officials Signal Divide Over Whether to Hike Rates Again (2)  Chinese technology shares fell, with Tencent tumbling by the most in over two months, amid speculation its largest shareholder Prosus NV may speed up the selling of the Chinese tech firm’s stock

Australian stocks advanced to a five-week high, with the S&P/ASX 200 index rising 0.5% to close at 7,343.90, lifted by miners and health shares. The advance comes as investors weigh the potential for US inflation data due Wednesday to spur volatility across global markets.   In New Zealand, the S&P/NZX 50 index rose 0.4% to 11,917.50

Indian stock gauges rose for an eighth straight day as investors expect upcoming earnings season to support further recovery in local shares.  The S&P BSE Sensex rose 0.4% to 60,392.77 in Mumbai, while the NSE Nifty 50 Index advanced 0.5% to 17,812.40. The recent rally in key benchmarks has pushed the guages to their highest level since Feb. 21, helping trim their annual losses. Nifty 50 companies’ quarterly revenue and profit are estimated to expand 11% and 12% respectively, with financials and auto firms reporting strong growth, analysts at Axis Securities, wrote in a note. The govt will release release consumer price inflation and industrial production data later on Wednesday. Markets in India will be closed on Friday due to a local holiday. HDFC Bank contributed the most to the index gain, increasing 1.3%. Out of 30 shares in the Sensex index, 17 rose, while 13 fell.

In FX, the Bloomberg Dollar Spot Index was largely unchanged, after falling 0.2% on Tuesday. The dollar was mixed against major currencies; USD/JPY rose 0.1% to 133.79, EUR/USD up 0.1% at 1.0924 as G10 pairs trade in tight ranges ahead of the release of the US CPI report. The exception is the Swedish krona, which rallied as much as 0.8% versus the greenback; EUR/SEK down 0.5% to 11.3578, after falling as much as 0.7%. NOK/SEK drops 0.5% to 0.9857, eyes March triple-bottom at 0.9725-26. NOK/SEK is a consensus long position, according to Nomura strategist Jordan Rochester; Wednesday’s price moves may therefore reflect “continued unwinding” of that position after prior day’s softer PPI data from Norway.

In rates, treasuries are flat, reversing an earlier drop into the early US session, where early focus turns to March inflation data. Cash yields flat to cheaper by 2bp across the curve with losses led by front-end, although 2-year yields remain inside Tuesday’s range. 10-year yields are around 3.43%, cheaper by ~1bp vs Tuesday’s close with 2s10s, 5s30s spreads both flatter by ~1bp amid front-end led losses; two-year TSYs are up 1bp to 4.03%. German two-year yields are up 5bps, richer by 1bp vs Treasuries while gilts outperform by ~3bp. US auction cycle continues with $32b 10-year note reopening, following Tuesday’s sold 3-year sale which stopped on the screws. WI 10-year yield around 3.45% is below auction stops since September and more than 50bp richer than last month’s result.

In commodities, crude futures edge higher with WTI adding 0.3% to trade near $81.75. Spot gold rises 0.3% to around $2,010. Bitcoin falls 0.6%.

Looking at today's main events, the main highlight will be the US CPI release for March. Otherwise from central banks, we’ll get the release of the FOMC minutes from the March meeting, as well as a policy decision from the Bank of Canada. Speakers will include BoE Governor Bailey, ECB Vice President de Guindos, the ECB’s De Cos and Villeroy, and the Fed’s Barkin and Daly. Finally, G20 finance ministers and central bank governors will be meeting.

Market Snapshot

  • S&P 500 futures up 0.1% to 4,142.00
  • STOXX Europe 600 up 0.3% to 463.03
  • MXAP little changed at 162.01
  • MXAPJ down 0.3% to 524.65
  • Nikkei up 0.6% to 28,082.70
  • Topix up 0.8% to 2,006.92
  • Hang Seng Index down 0.9% to 20,309.86
  • Shanghai Composite up 0.4% to 3,327.18
  • Sensex up 0.3% to 60,366.48
  • Australia S&P/ASX 200 up 0.5% to 7,343.88
  • Kospi up 0.1% to 2,550.64
  • German 10Y yield little changed at 2.31%
  • Euro little changed at $1.0919
  • Brent Futures little changed at $85.61/bbl
  • Gold spot up 0.3% to $2,010.25
  • US Dollar Index little changed at 102.14

Top Overnight News

  • Data from Chinese travel apps suggests travel activity in the country has returned to pre-pandemic levels and is set to boom during the upcoming May Day holiday (April 29-May 3). RTRS   
  • The renminbi’s share of trade finance has more than doubled since the invasion of Ukraine, analysis by the Financial Times has found — a surge that analysts say reflects both greater use of China’s currency to facilitate trade with Russia and the rising cost of dollar financing. FT
  • China launches a “trade barrier investigation” into Taiwan’s “restrictive measures” imposed on mainland products. SCMP  
  • BOJ deputy governor reiterates the message delivered Monday by Ueda, promising to continue with an easing bias to ensure achievement of the inflation objective. RTRS
  • The U.S. affiliate of the world's largest crypto exchange said it will stop facilitating trades in the digital tokens TRX and Spell following a review. Binance.US didn't give specific reasons for its decision, but said its periodic reviews of digital assets consider factors such as their regulatory standing in the U.S., trading volume and liquidity, and changes in their risk profile. WSJ
  • Silicon Valley investors are touring the Middle East, seeking to build long-term ties with sovereign wealth funds during the worst funding crunch for venture capital firms in almost a decade. FT
  • A report from the New York Fed warns that banks face further upside pressure in deposit costs and deposit betas (deposits will likely continue exiting the banking system in search of more attractive yields elsewhere). NY Fed
  • Crude holdings at Cushing contracted by 1.4 million barrels last week, the API is said to have reported. That would be a sixth drawdown if confirmed by the EIA. Overall, US supplies rose 400,000 barrels. In OECD nations, stocks surged by more than 115 million barrels from the start of 2022 through February this year, OilX said, spurred in part by supplies from government reserves. BBG
  • Elon Musk said most of the advertisers who abandoned Twitter have returned. He reaffirmed the company's operating at about breakeven and may be cash-flow positive this quarter. BBG

A more detailed look at global markets courtesy of Newsquawk

APAC stocks saw a mixed session following a similar lead from Wall Street in the run-up to the risk-packed session. ASX 200 was once again propped up by mining names, with industrial metals underpinned by the recent Dollar decline. Nikkei 225 extended further above 28k, with the index buoyed by recent bullish comments from Warren Buffett on Japanese stocks ahead of a three-hour CNBC interview from Tokyo. Hang Seng and Shanghai Comp were mixed with the former underperforming amid losses in large-cap stocks (JD.com, Alibaba, Tencent) following weakness from Stateside peers.

Top Asian News

  • China is reportedly negotiating a compromise plan with other major creditors that could help break a logjam in multibillion-dollar debt-relief talks for struggling developing nations, according to WSJ citing sources.
  • IMF Financial Stability Report said changes to the BOJ's Yield Curve Control (YCC) may affect international financial markets through three channels of exchange rates, term premiums on sovereign bonds, and global risk premiums, according to Reuters.

European bourses are essentially unchanged in-fitting with broader price action ahead of the packed US docket, Euro Stoxx 50 +0.2%. Sectors are mixed, with magnitudes slim, as Media leads amid UMG upside with a slight pro-defensive bias in play. Stateside, futures are in-fitting with the above as participants are entirely focused on CPI and Fed speak thereafter, ES +0.1%.

Top European News

  • ECB's Villeroy said we now face the risk of entrenched inflation, price growth has become more widespread, and potentially more persistent. He added the ECB's policy response is now moving from a “sprint” to a “long-distance race”, and the ECB is fully committed to reining inflation, according to Reuters.
  • US President Biden and UK PM Sunak to meet at 11:15BST/06:15EDT; Biden is to deliver remarks at 13:00BST/08:00EDT, according to The White House.
  • Swiss Lower House voted to retrospectively reject the CHF 109bln Credit Suisse (CSGN SW) rescue package, according to Reuters.
  • UK-US free trade discussions are unlikely to resume until 2025 at the earliest when a new President could be in place, according to the Telegraph.

FX

  • The DXY is in close proximity to the neutral mark after somewhat mixed Fed commentary overnight and ahead of inflation with other catalysts limited, DXY holding above 102.00.
  • Action which is lending some modest support to most G10 peers, with EUR outpacing somewhat in narrow 1.0912-1.0937 parameters while GBP is slightly softer and seemingly tied to 1.24.
  • Antipodeans are similarly near the unchanged mark, with AUD faring slightly better than its peer but off best after remarks from RBA's Bullock.
  • JPY has exhibited a comparably large range thus far and is currently holding at the mid-point of 133.56-134.04 boundaries as it digests firmer data and a reiteration from Uchida.
  • PBoC set USD/CNY mid-point at 6.8854 vs exp. 68843. (prev. 6.8882).

Fixed Income

  • Debt continues to drift lower despite bouts of consolidation around supply and China-Taiwan geopolitics which have failed to markedly alter the tone pre-CPI/US supply.
  • Specifically, the German conventional and subsequent UK I/L sale were well received, particularly the latter, though both Bunds and Gilts remain near their 135.46 and 103.09 troughs.
  • Stateside, USTs are similarly softer with yields slightly bid and action a touch more pronounced at the long-end of the curve.

Commodities

  • Overall, the commodity space is in-fitting with broader market action and as such is relatively contained ahead of US CPI and numerous Central Bank speakers/events.
  • WTI and Brent are within touching distance of the unchanged mark within parameters less than USD 0.50/bbl as specific newsflow has been essentially non-existent aside from China-Taiwan geopolitics.
  • ICE announces it is to implement expiry limits on Dutch TTF natural gas futures, effective for June 2023 TTF natural gas futures contract expiry. ICE Endex will introduce expiry limit of 7k lots in TTF for the last 5 trading days prior to expiry.
  • Spot gold continues to hold above the USD 2k mark and has increased the gap somewhat when compared to Tuesday’s action from its 10-DMA at USD 1994/oz; elsewhere, base metals are mixed.

Geopolitics

  • US House is set to vote next week on a bill to address potential Huawei and ZTE threats, according to Reuters.
  • Taiwan's defence ministry said in the past 24 hours spotted 35 Chinese aircraft and 8 Chinese ships around Taiwan, according to Reuters.
  • North Korea remains unresponsive to regular contact via the inter-Korean liaison line for a sixth day, according to Yonhap.
  • US National Security Adviser Sullivan spoke with Saudi Crown Prince MBS on Tuesday, and they discussed global and regional matters and ongoing diplomacy related to ending the war in Yemen, according to Reuters.
  • China has confirmed it is willing to work with the Australian government to resolve tariff disputes over both wine and barley exports, according to AFR.
  • China's Foreign Ministry held a Sino-Dutch consultation on arms control and non-proliferation in Beijing on Tuesday, according to a ministry statement.
  • China plans to impose a no-fly zone north of Taiwan during April 16th-18th, via Reuters citing sources; subsequently, the window has been reduced to 27minutes on the 16th for a "falling object related to a launch vehicle" according to S. Korea.
  • China and Russia are in advanced discussions with Iran to replenish Iran's supply of a chemical compound which is used to propel ballistic missiles, via Politico citing sources; would be a clear violation of UN sanctions, article adds.

US Event Calendar

  • 07:00: April MBA Mortgage Applications +5.3%, prior -4.1%
  • 08:30: March CPI YoY, est. 5.1%, prior 6.0%; MoM, est. 0.2%, prior 0.4%
  • 08:30: March CPI Ex Food and Energy YoY, est. 5.6%, prior 5.5%; MoM, est. 0.4%, prior 0.5%
  • 08:30: March Real Avg Hourly Earning YoY, prior -1.3%
  • 08:30: March Real Avg Weekly Earnings YoY, prior -1.9%
  • 14:00: March FOMC Meeting Minutes
  • 14:00: March Monthly Budget Statement, est. -$314b, prior -$192.6b

DB's Craig Nicol concludes the overnight wrap

As markets got going again after the long weekend, sovereign bonds have seen a further selloff thanks to growing expectations that the Fed will deliver another rate hike next month. In part that’s a function of good news, since we haven’t had additional market turmoil since March, and yesterday saw Bloomberg’s index of US financial conditions ease to its most accommodative level since SVB’s collapse. But at the same time, there’ve also been some more negative factors driving that. In particular, inflation has continued to run at a rapid clip, so today’s US CPI release for March will be an important print as investors try to get a steer on whether they’ll hike.

In terms of what to expect from the CPI release, our US economists are looking for headline CPI to come in at a monthly +0.24%, which would take the year-on-year rate down to +5.2%. However, they see core CPI at a more robust +0.39%, which would take the year-on-year rate up a tenth to +5.6%. Last month’s print was further down the headlines thanks to the SVB-related turmoil, but it still showed that core CPI was at a 5-month high of +0.45%, and the components pointed to inflation that remained broad-based and sticky. So the Fed will want to see more progress before they can be comfortable with the inflation numbers.

As investors awaited the CPI print, markets moved to price in a growing chance of a rate hike in three weeks’ time. For instance, futures have increased the chances of a 25bp hike to 74% this morning, which is the highest level since SVB was taken over by regulators on March 10. The end-2023 rate is also at a post-SVB high this morning of 4.42%. In turn, that’s meant a further rise in Treasury yields, with the 2yr yield moving higher for a 4th consecutive session yesterday, with a +1.5bps gain to 4.02%, and overnight it’s risen a further +1.0bps to 4.03%. The 10yr yield also rose +0.9bps yesterday to 3.43%, and overnight it’s added a further +0.4bps.

The prospect of another Fed hike was given some support by various FOMC speakers yesterday. Early in the session, New York Fed President Williams said that the Fed’s median forecast for a further rate hike was a “reasonable starting place”. And later in the session, Philadelphia Fed President Harker said that he wanted to “get rates above 5 and then sit there for a while”, which would imply at least one more 25bp move. However, Chicago Fed President Goolsbee struck a notably more dovish tone relative to some recent speakers, saying that the Fed should “be careful about raising rates too aggressively until we see how much work the headwinds are doing for us in getting down inflation.”

Much like treasuries, equities were fairly steady before sinking into the close as the more rates-sensitive growth sectors like software (-1.4%) and semiconductors (-0.8%) led the declines. However, technology was about the only sector negative on the day with moderate gains elsewhere. As such, the S&P 500 was flat, but the NASDAQ fell -0.43% and the FANG+ index fell -1.45%. European equities put in a stronger performance, but that reflected the fact they hadn’t been open since Thursday, and the STOXX 600 saw a larger gain of +0.62%. For sovereign bonds there was a similar catchup in Europe following Friday’s US jobs report, and yields on 10yr bunds (+12.8bps), OATs (+12.4bps) and BTPs (+14.0 bps) all saw a solid increase.

Another trend that isn’t helping on the inflation side has been the recent rebound in oil prices. That continued yesterday, with Brent crude closing at a one-month high of $85.50/bbl, whilst WTI closed at a two-month high of $81.53/bbl. That came as the US Energy Information Administration released their short-term energy outlook, which showed Brent crude averaging at $85/bbl in 2023, and $81/bbl in 2024, both up on the previous month’s forecast.

Overnight in Asia, equity markets are have been putting in a mixed performance ahead of the US CPI release later today. Currently, the Nikkei (+0.64%) is outperforming, with the Shanghai Comp (+0.47%), the KOSPI (+0.22%) and the CSI 300 (+0.16%) also advancing. The main exception to that has been the Hang Seng (-0.59%). Otherwise, US equity futures have been flat this morning, with those on the S&P 500 (+0.04%) and the NASDAQ 100 (+0.01%) pointing to little change.

Elsewhere yesterday, the IMF released their latest economic forecasts for the global economy, which pointed to modest downgrades relative to their last update in January. They now see global growth at +2.8% in 2023 and +3.0% in 2024, which are both down by a tenth relative to three months ago. However, a few places did see some upgrades, with the US now expected to grow by +1.6% in 2023 (vs. +1.4% in January) and the UK projected to contract by -0.3% (vs. -0.6% in January). More broadly though, the IMF pointed out that the risks were “heavily skewed to the downside, with the chances of a hard landing having risen sharply.”

There wasn’t much other data to speak of yesterday. Euro Area retail sales contracted by -0.8% in February as expected but the previous month’s expansion was revised up half a point to +0.8%. Otherwise in the US, the NFIB small business optimism index for March fell to a three-month low of 90.1 (vs. 89.8 expected). One interesting point was that a net 9% of small business owners who borrow frequently said that financing was more difficult to obtain compared to three months earlier, which is the worst score on that in just over a decade. The previous month it had only been a net 5%, and that shift of 4 points lower in a month was the biggest monthly decline since December 2002.

To the day ahead now, and the main highlight will be the US CPI release for March. Otherwise from central banks, we’ll get the release of the FOMC minutes from the March meeting, as well as a policy decision from the Bank of Canada. Speakers will include BoE Governor Bailey, ECB Vice President de Guindos, the ECB’s De Cos and Villeroy, and the Fed’s Barkin and Daly. Finally, G20 finance ministers and central bank governors will be meeting.

Tyler Durden Wed, 04/12/2023 - 08:12

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February Employment Situation

By Paul Gomme and Peter Rupert The establishment data from the BLS showed a 275,000 increase in payroll employment for February, outpacing the 230,000…

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By Paul Gomme and Peter Rupert

The establishment data from the BLS showed a 275,000 increase in payroll employment for February, outpacing the 230,000 average over the previous 12 months. The payroll data for January and December were revised down by a total of 167,000. The private sector added 223,000 new jobs, the largest gain since May of last year.

Temporary help services employment continues a steep decline after a sharp post-pandemic rise.

Average hours of work increased from 34.2 to 34.3. The increase, along with the 223,000 private employment increase led to a hefty increase in total hours of 5.6% at an annualized rate, also the largest increase since May of last year.

The establishment report, once again, beat “expectations;” the WSJ survey of economists was 198,000. Other than the downward revisions, mentioned above, another bit of negative news was a smallish increase in wage growth, from $34.52 to $34.57.

The household survey shows that the labor force increased 150,000, a drop in employment of 184,000 and an increase in the number of unemployed persons of 334,000. The labor force participation rate held steady at 62.5, the employment to population ratio decreased from 60.2 to 60.1 and the unemployment rate increased from 3.66 to 3.86. Remember that the unemployment rate is the number of unemployed relative to the labor force (the number employed plus the number unemployed). Consequently, the unemployment rate can go up if the number of unemployed rises holding fixed the labor force, or if the labor force shrinks holding the number unemployed unchanged. An increase in the unemployment rate is not necessarily a bad thing: it may reflect a strong labor market drawing “marginally attached” individuals from outside the labor force. Indeed, there was a 96,000 decline in those workers.

Earlier in the week, the BLS announced JOLTS (Job Openings and Labor Turnover Survey) data for January. There isn’t much to report here as the job openings changed little at 8.9 million, the number of hires and total separations were little changed at 5.7 million and 5.3 million, respectively.

As has been the case for the last couple of years, the number of job openings remains higher than the number of unemployed persons.

Also earlier in the week the BLS announced that productivity increased 3.2% in the 4th quarter with output rising 3.5% and hours of work rising 0.3%.

The bottom line is that the labor market continues its surprisingly (to some) strong performance, once again proving stronger than many had expected. This strength makes it difficult to justify any interest rate cuts soon, particularly given the recent inflation spike.

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Mortgage rates fall as labor market normalizes

Jobless claims show an expanding economy. We will only be in a recession once jobless claims exceed 323,000 on a four-week moving average.

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Everyone was waiting to see if this week’s jobs report would send mortgage rates higher, which is what happened last month. Instead, the 10-year yield had a muted response after the headline number beat estimates, but we have negative job revisions from previous months. The Federal Reserve’s fear of wage growth spiraling out of control hasn’t materialized for over two years now and the unemployment rate ticked up to 3.9%. For now, we can say the labor market isn’t tight anymore, but it’s also not breaking.

The key labor data line in this expansion is the weekly jobless claims report. Jobless claims show an expanding economy that has not lost jobs yet. We will only be in a recession once jobless claims exceed 323,000 on a four-week moving average.

From the Fed: In the week ended March 2, initial claims for unemployment insurance benefits were flat, at 217,000. The four-week moving average declined slightly by 750, to 212,250


Below is an explanation of how we got here with the labor market, which all started during COVID-19.

1. I wrote the COVID-19 recovery model on April 7, 2020, and retired it on Dec. 9, 2020. By that time, the upfront recovery phase was done, and I needed to model out when we would get the jobs lost back.

2. Early in the labor market recovery, when we saw weaker job reports, I doubled and tripled down on my assertion that job openings would get to 10 million in this recovery. Job openings rose as high as to 12 million and are currently over 9 million. Even with the massive miss on a job report in May 2021, I didn’t waver.

Currently, the jobs openings, quit percentage and hires data are below pre-COVID-19 levels, which means the labor market isn’t as tight as it once was, and this is why the employment cost index has been slowing data to move along the quits percentage.  

2-US_Job_Quits_Rate-1-2

3. I wrote that we should get back all the jobs lost to COVID-19 by September of 2022. At the time this would be a speedy labor market recovery, and it happened on schedule, too

Total employment data

4. This is the key one for right now: If COVID-19 hadn’t happened, we would have between 157 million and 159 million jobs today, which would have been in line with the job growth rate in February 2020. Today, we are at 157,808,000. This is important because job growth should be cooling down now. We are more in line with where the labor market should be when averaging 140K-165K monthly. So for now, the fact that we aren’t trending between 140K-165K means we still have a bit more recovery kick left before we get down to those levels. 




From BLS: Total nonfarm payroll employment rose by 275,000 in February, and the unemployment rate increased to 3.9 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in health care, in government, in food services and drinking places, in social assistance, and in transportation and warehousing.

Here are the jobs that were created and lost in the previous month:

IMG_5092

In this jobs report, the unemployment rate for education levels looks like this:

  • Less than a high school diploma: 6.1%
  • High school graduate and no college: 4.2%
  • Some college or associate degree: 3.1%
  • Bachelor’s degree or higher: 2.2%
IMG_5093_320f22

Today’s report has continued the trend of the labor data beating my expectations, only because I am looking for the jobs data to slow down to a level of 140K-165K, which hasn’t happened yet. I wouldn’t categorize the labor market as being tight anymore because of the quits ratio and the hires data in the job openings report. This also shows itself in the employment cost index as well. These are key data lines for the Fed and the reason we are going to see three rate cuts this year.

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Inside The Most Ridiculous Jobs Report In History: Record 1.2 Million Immigrant Jobs Added In One Month

Inside The Most Ridiculous Jobs Report In History: Record 1.2 Million Immigrant Jobs Added In One Month

Last month we though that the January…

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Inside The Most Ridiculous Jobs Report In History: Record 1.2 Million Immigrant Jobs Added In One Month

Last month we though that the January jobs report was the "most ridiculous in recent history" but, boy, were we wrong because this morning the Biden department of goalseeked propaganda (aka BLS) published the February jobs report, and holy crap was that something else. Even Goebbels would blush. 

What happened? Let's take a closer look.

On the surface, it was (almost) another blockbuster jobs report, certainly one which nobody expected, or rather just one bank out of 76 expected. Starting at the top, the BLS reported that in February the US unexpectedly added 275K jobs, with just one research analyst (from Dai-Ichi Research) expecting a higher number.

Some context: after last month's record 4-sigma beat, today's print was "only" 3 sigma higher than estimates. Needless to say, two multiple sigma beats in a row used to only happen in the USSR... and now in the US, apparently.

Before we go any further, a quick note on what last month we said was "the most ridiculous jobs report in recent history": it appears the BLS read our comments and decided to stop beclowing itself. It did that by slashing last month's ridiculous print by over a third, and revising what was originally reported as a massive 353K beat to just 229K,  a 124K revision, which was the biggest one-month negative revision in two years!

Of course, that does not mean that this month's jobs print won't be revised lower: it will be, and not just that month but every other month until the November election because that's the only tool left in the Biden admin's box: pretend the economic and jobs are strong, then revise them sharply lower the next month, something we pointed out first last summer and which has not failed to disappoint once.

To be fair, not every aspect of the jobs report was stellar (after all, the BLS had to give it some vague credibility). Take the unemployment rate, after flatlining between 3.4% and 3.8% for two years - and thus denying expectations from Sahm's Rule that a recession may have already started - in February the unemployment rate unexpectedly jumped to 3.9%, the highest since February 2022 (with Black unemployment spiking by 0.3% to 5.6%, an indicator which the Biden admin will quickly slam as widespread economic racism or something).

And then there were average hourly earnings, which after surging 0.6% MoM in January (since revised to 0.5%) and spooking markets that wage growth is so hot, the Fed will have no choice but to delay cuts, in February the number tumbled to just 0.1%, the lowest in two years...

... for one simple reason: last month's average wage surge had nothing to do with actual wages, and everything to do with the BLS estimate of hours worked (which is the denominator in the average wage calculation) which last month tumbled to just 34.1 (we were led to believe) the lowest since the covid pandemic...

... but has since been revised higher while the February print rose even more, to 34.3, hence why the latest average wage data was once again a product not of wages going up, but of how long Americans worked in any weekly period, in this case higher from 34.1 to 34.3, an increase which has a major impact on the average calculation.

While the above data points were examples of some latent weakness in the latest report, perhaps meant to give it a sheen of veracity, it was everything else in the report that was a problem starting with the BLS's latest choice of seasonal adjustments (after last month's wholesale revision), which have gone from merely laughable to full clownshow, as the following comparison between the monthly change in BLS and ADP payrolls shows. The trend is clear: the Biden admin numbers are now clearly rising even as the impartial ADP (which directly logs employment numbers at the company level and is far more accurate), shows an accelerating slowdown.

But it's more than just the Biden admin hanging its "success" on seasonal adjustments: when one digs deeper inside the jobs report, all sorts of ugly things emerge... such as the growing unprecedented divergence between the Establishment (payrolls) survey and much more accurate Household (actual employment) survey. To wit, while in January the BLS claims 275K payrolls were added, the Household survey found that the number of actually employed workers dropped for the third straight month (and 4 in the past 5), this time by 184K (from 161.152K to 160.968K).

This means that while the Payrolls series hits new all time highs every month since December 2020 (when according to the BLS the US had its last month of payrolls losses), the level of Employment has not budged in the past year. Worse, as shown in the chart below, such a gaping divergence has opened between the two series in the past 4 years, that the number of Employed workers would need to soar by 9 million (!) to catch up to what Payrolls claims is the employment situation.

There's more: shifting from a quantitative to a qualitative assessment, reveals just how ugly the composition of "new jobs" has been. Consider this: the BLS reports that in February 2024, the US had 132.9 million full-time jobs and 27.9 million part-time jobs. Well, that's great... until you look back one year and find that in February 2023 the US had 133.2 million full-time jobs, or more than it does one year later! And yes, all the job growth since then has been in part-time jobs, which have increased by 921K since February 2023 (from 27.020 million to 27.941 million).

Here is a summary of the labor composition in the past year: all the new jobs have been part-time jobs!

But wait there's even more, because now that the primary season is over and we enter the heart of election season and political talking points will be thrown around left and right, especially in the context of the immigration crisis created intentionally by the Biden administration which is hoping to import millions of new Democratic voters (maybe the US can hold the presidential election in Honduras or Guatemala, after all it is their citizens that will be illegally casting the key votes in November), what we find is that in February, the number of native-born workers tumbled again, sliding by a massive 560K to just 129.807 million. Add to this the December data, and we get a near-record 2.4 million plunge in native-born workers in just the past 3 months (only the covid crash was worse)!

The offset? A record 1.2 million foreign-born (read immigrants, both legal and illegal but mostly illegal) workers added in February!

Said otherwise, not only has all job creation in the past 6 years has been exclusively for foreign-born workers...

Source: St Louis Fed FRED Native Born and Foreign Born

... but there has been zero job-creation for native born workers since June 2018!

This is a huge issue - especially at a time of an illegal alien flood at the southwest border...

... and is about to become a huge political scandal, because once the inevitable recession finally hits, there will be millions of furious unemployed Americans demanding a more accurate explanation for what happened - i.e., the illegal immigration floodgates that were opened by the Biden admin.

Which is also why Biden's handlers will do everything in their power to insure there is no official recession before November... and why after the election is over, all economic hell will finally break loose. Until then, however, expect the jobs numbers to get even more ridiculous.

Tyler Durden Fri, 03/08/2024 - 13:30

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