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Futures Flat Ahead Of “Most Important Fed Decision Of 2023”

Futures Flat Ahead Of "Most Important Fed Decision Of 2023"

S&P 500 futures little changed, reversing a modest drop earlier in the session,…



Futures Flat Ahead Of "Most Important Fed Decision Of 2023"

S&P 500 futures little changed, reversing a modest drop earlier in the session, and were set for a muted open on Wednesday after two days of gains, with investors awaiting the "most important Federal Reserve rate decision of 2023" and as recent turmoil in the global banking sector subsided. Futures contracts on the S&P 500 were up 0.1% by 7:30 a.m. ET while Nasdaq 100 futures were flat. Both underlying indexes have gained for two consecutive sessions. European stocks fluctuated in a narrow range and Treasury yields were unchanged after a surge on Tuesday that added 19 basis points to the two-year maturity. The dollar dropped for a 5th straight day, its longest losing streak since April 2021, while the pound strengthened after a surprise jump in UK inflation which came above all expectations.

Among notable movers in US premarket trading, GameStop surged after reporting a surprise fourth quarter adjusted profit, lifting other meme stocks including AMC and Bed Bath & Beyond. Shares in First Republic Bank reversed all afterhous losses and edged higher as Wall Street leaders and US officials are exploring the possibility of government backing to encourage a deal that would shore up the lender. Here are some other notable premarket movers:

  • Nike shares decline 1.6% in premarket trading after the sportswear brand said in prepared remarks that full-year gross margin will come in at the low end of the previous guidance range. Analysts flagged the challenges Nike faces in moving to a cleaner inventory position.
  • GameStop rose as much as 50% after the video game retailer reported a surprise fourth quarter adjusted profit, with Jefferies noting that cost reductions are showing early signs of progress. Other meme stocks including AMC Entertainment and Bed Bath & Beyond US) also jumped.
  • Virgin Orbit Holdings rose as much as 155%, after the company said it was targeting “an incremental resumption of operations” after temporarily halting activities last week.
  • Meta Platforms edged up 0.4%, after KeyBanc raised its recommendation on the Facebook parent, the third broker to turn bullish on the stock in the space of a week. Keybanc upped the stock to overweight, from sector weight, citing bigger-than-expected cost cuts and robust ad revenue.
  • Shares of US-listed Chinese electric vehicle makers may be in focus after Nio (NIO US) said it’s confident of reaching its target of doubling sales this year. Keep an eye on Nio as well as peers XPeng (XPEV US) and Li Auto (LI US).

US stocks rebounded this week after investors were rocked by the collapse of several lenders earlier in the month, spurring fears about the health of the financial system and the negative impact from higher rates on the economy. Government and monetary intervention managed to restore some calm this week, with the S&P 500 benchmark erasing monthly losses on Tuesday. The S&P Banks Index also rebounded, but is still down 18% this month. Technical indicators also showed positive signs, with MACD momentum improving for both the S&P 500 index and the Dow Jones, while being firmly in positive territory for the Nasdaq 100.

That said, confidence is extremely fragile, with all eyes are now on the Fed for clues about the path of interest rates going forward.  As explained, the "trapped" Fed’s next move will reveal whether the fight against inflation trumps fears of financial instability from the banking fallout in recent weeks, and vice versa. Consensus is for a 25-bp hike and swaps markets now signal 80% odds on that after market pricing was split between a hike and a pause earlier in the week, but some voices urge a pause after the banking turmoil. One economist said the “tension is leading to existential angst.” Our full FOMC preview is here.

“If the Fed raises by 50 basis points, it will come as a huge surprise and the market won’t like it,” said Roger Lee, head of UK equities at Investec Bank Plc. “But ironically, if they don’t raise at all, the market will get concerned about that too, as it will pose questions about what the Fed is seeing that the market isn’t.” Well, one thing the Fed could be seeing is all the bank failures that nobody - neither the Fed, nor the market - was seeing as recently as two weeks ago. So it's not clear they need to so anything more.

“In the run-up to today’s US interest rate decision, most market participants will be more cautious,” said Comdirect Bank strategist Andreas Lipkow. “In the current situation, it doesn’t take much to create high levels of volatility on the financial markets. On the one hand, investors are nervous, but at the same time don’t want to miss any further upside performance. The FOMO effect was already clearly visible yesterday.”

European stocks also advanced, with the Stoxx 600 adding 0.3% and on course for a third consecutive gain as banks stocks outperform. UK inflation accelerated unexpectedly in February, cementing expectations that the Bank of England will deliver another 25bps hike on Thursday. UK two-year yields have jumped ~17bps while the British pound raced to the top of the G-10 pile, rising 0.6% versus the greenback. Here are some of the most notable European movers:

  • Rovio shares fall as much as 8.5%, after the Finnish mobile game maker said it has ended non-binding preliminary talks with Playtika, which had offered to buy the firm
  • BHG falls as much as 8.4%, extending losses into a seventh session, after Danske Bank cut its recommendation to sell from hold on deteriorating demand
  • UBS shares rise as much as 3.6%, erasing almost all the losses made during the banking rout, emerging the winner from the historic rescue deal for rival Credit Suisse AG
  • Marks & Spencer gains as much as 4.8% after getting upgraded by three analysts, with Citi citing a less pessimistic UK macro outlook
  • Fevertree Drinks shares jump as much as 10%, the most since November, after the maker of tonics and mixers reported full-year adjusted Ebitda that beat estimates
  • Skistar rallies as much as 7.1% after Nordea initiates coverage of the Nordic ski resort operator with a buy recommendation, erasing Tuesday’s losses
  • Vistry Group jumps as much as 4.5% after the UK homebuilder reported full-year revenue that beat estimates and gave guidance for 2023 that Citi sees as encouraging
  • Axfood gains as much as 1.4%, outperforming a flat wider market, after Danske Bank raised its recommendation for the Swedish grocery group to hold from sell
  • Colruyt surges as much as 15%, the most in three years, after Virya Energy announces sale of 100% of the shares in offshore wind energy platform Parkwind



UBS has erased almost all of its share losses suffered during the rout. It offered to buy back €2.75 billion ($3 billion) of bail-in notes it sold on Friday, two days before snapping up Credit Suisse, citing a “prudent assessment” of exceptional developments.


Earlier in the session, Asian stocks gained, with a gauge of the region’s financial shares headed for its biggest advance in more than two months, as concerns over a global banking crisis abated and focus turned to the Federal Reserve’s rate decision. The MSCI Asia Pacific Index climbed as much as 1.6% as firms including Mitsubishi UFJ Financial Group and Commonwealth Bank of Australia jumped. Hong Kong’s equity benchmark was among the top gainers in Asia, boosted by tech names, while Japan’s gauges also rose in catch-up trade. Sentiment improved following authorities’ assurances including comments from Treasury Secretary Janet Yellen, who said the US government could intervene if the stability of smaller lenders are threatened. Asian investors are now focused on the Fed’s decision as they assess the outlook for international money flows, with most of the region’s emerging markets seeing foreign funds turn net sellers this month. 

“The focus for the upcoming Fed will clearly have to address the current financial stability concerns while pretending to stay on message on inflation considerations,” Saxo Capital Markets strategists wrote in a note. Investors should consider how the Fed “positions its level of concern around recent events and the risk of a funding crisis in the banking system,” they added.  Read: Yellen Says US Will Intervene If Needed to Protect Smaller Banks The Hang Seng gained 1.7%, paring this month’s loss in the wake of the collapse of three US regional banks and the takeover of Switzerland’s Credit Suisse Group AG. Japan’s Nikkei 225 climbed 1.9%, the biggest jump since Jan. 18 after investors returned from a national holiday.

Japanese stocks also rose in catch-up trade as traders returned from a national holiday, buying shares ahead of the Federal Reserve’s policy decision. The Topix Index gained 1.7% to 1,962.93 as of market close Tokyo time, while the Nikkei advanced 1.9% to 27,466.61. Keyence Corp. contributed the most to the Topix Index gain, increasing 4.2%. Out of 2,159 stocks in the index, 2,000 rose and 126 fell, while 33 were unchanged. Shares rose across Asia, tracking US gains, as concerns over financial stability eased amid assurances from authorities including Treasury Secretary Janet Yellen. Expectations for Fed’s rate hikes have declined over the last two weeks in the wake of the collapse of three US regional banks and the takeover of Switzerland’s Credit Suisse Group AG. “Yellen’s comments and the ECB policy on AT1 bonds may have calmed investors,” said Hideyuki Suzuki, general manager at SBI Securities

Australian stock gained: the S&P/ASX 200 index rose 0.9% to close at 7,015.60, in a broad rally supported by energy stocks and banks. Lenders continued to reclaim recent losses as fears over the financial sector ease, ahead of the Federal Reserve’s much-anticipated interest-rate decision later Wednesday.  Traders placed greater odds that the Fed will raise interest rates 25 basis points after market pricing was split between a hike and a pause earlier in the week. In New Zealand, the S&P/NZX 50 index rose 0.5% to 11,586.93

Key stocks gauges in India rose on Wednesday, tracking a risk-on trade across most Asian markets, ahead of the Federal Reserve’s rate decision later on Wednesday. The S&P BSE Sensex Index rose 0.2% to 58,214.59 in Mumbai, while the NSE Nifty 50 Index advanced 0.3% as the gauges rose for the fourth session in five.  ICICI Bank contributed the most to the Sensex’s gain, increasing 0.9%. Out of 30 stocks in the index, 18 rose and 11 fell, while one was little changed.

In FX, the pound extended gains as traders firmed up bets on a quarter-point hike on Thursday, while UK bonds fell. A Bloomberg index of dollar strength retreated. The BBDXY headed for a fifth day of losses, the longest losing streak since April 2021, but as long as 55-DMA supports holds, topside risks remain intact; on the weekly, the gauge is struggling to stay within the cloud given the bearish MA crossover and RSI divergence

In rates, treasuries were steady, yields within a couple of basis points of Tuesday’s closing levels with the belly outperforming, steepening 5s30s and unwinding a portion of Tuesday’s sharp flattening move. US 10-year yields steady around 3.60%, slightly richer on the day with bunds and gilts lagging by additional 6bp and 11bp in the sector; UK curve aggressively bear-flattens with 2-year yields cheaper by ~20bp on the day following hot February CPI numbers. Bunds underperform, following wider losses in gilts during London hours after UK inflation increased unexpectedly. US session includes Fed rate decision and updated economic projections at 2pm New York time and Chair Powell news conference at 2:30pm.

In commodities, crude futures declined with WTI down 0.4% to trade near $69.40. Spot gold rises 0.3% to around $1,945

Looking to the day ahead now, and the main highlight will be the Federal Reserve’s policy decision along with Chair Powell’s press conference. Other central bank speakers include ECB President Lagarde, and the ECB’s Villeroy, Lane, Rehn, Wunsch, Panetta and Nagel. Otherwise, data releases include the UK CPI release for February.

Market Snapshot

  • S&P 500 futures flat at 4,035.75
  • STOXX Europe 600 up 0.3% at 447.56
  • MXAP up 1.4% to 158.37
  • MXAPJ up 1.3% to 509.91
  • Nikkei up 1.9% to 27,466.61
  • Topix up 1.7% to 1,962.93
  • Hang Seng Index up 1.7% to 19,591.43
  • Shanghai Composite up 0.3% to 3,265.75
  • Sensex up 0.2% to 58,206.75
  • Australia S&P/ASX 200 up 0.9% to 7,015.59
  • Kospi up 1.2% to 2,416.96
  • German 10Y yield little changed at 2.32%
  • Euro little changed at $1.0777
  • Brent Futures down 0.6% to $74.85/bbl
  • Gold spot up 0.2% to $1,943.64
  • U.S. Dollar Index down 0.13% to 103.12

Top Overnight News

  • China has for the first time approved a Covid-19 vaccine based on mRNA technology, greenlighting a homegrown shot months after the ruling Communist Party eliminated its strict pandemic restrictions. China has long refused to use the foreign-made mRNA shots that were crucial in easing the pandemic in many parts of the world and that the United States first authorized for emergency use in December 2020. NYT
  • China’s auto industry association on Wednesday urged automakers and authorities to cool “price-cut hype” to ensure the stable development of the industry. “A price war is not a long-term solution”, the China Association of Automobile Manufacturers wrote. RTRS
  • UK inflation spikes beyond expectations, coming in at +10.4% Y/Y (up from +10.1% in January and ahead of the St’s +9.9% forecast, with the largest upside contributors coming from restaurants/cafes, food, and clothing), placing further pressure on the BOE ahead of its meeting on Thursday. RTRS
  • ECB’s Lagarde warns that the battle against inflation is far from over (“we do not see clear evidence that underlying inflation is trending downwards”). ECB  
  • Bundesbank head said monetary officials need to be “stubborn” and continue hiking rates to combat inflation as the battle against elevated prices isn’t over. FT
  • UBS offered to buy back €2.75 billion of bail-in notes it sold on Friday, two days before snapping up Credit Suisse, citing a "prudent assessment" of exceptional developments. Holders were invited to tender for cash bonds due March 2028 and March 2032 at their respective reoffer price. BBG
  • S&P warned the wipeout of Credit Suisse's AT1 notes raises the risk of heavy losses in similar debt of other banks, making future issuance more expensive. BBG
  • FRC tapped Lazard to help with a review of strategic options that could include a sale, a capital infusion or asset trimming, according to people familiar with the matter. It also hired consulting firm McKinsey & Co. to help map out a postcrisis structure for the bank, the people said. WSJ
  • Oil dipped ahead of an interest-rate decision from the Federal Reserve following a two-day rally, as reassurances that authorities will work to contain the banking crisis brought some investors back to risk assets: BBG
  • Japanese Prime Minister Fumio Kishida, making his first visit to Kyiv since Russia’s invasion, offered strong support to Ukraine and invited President Volodymyr Zelenskiy to take part in the Group of Seven summit in mid-May, to which Zelenskiy accepted: BBG
  • First Republic rescue may rely on US backing to reach a deal: BBG
  • Ukraine won staff backing for a $15.6 billion loan from the International Monetary Fund, setting up the first loan to a nation at war in the institution’s 77-year history: BBG
  • Speaker Kevin McCarthy and Senate Majority Leader Chuck Schumer don’t agree on much, but neither party leader in the US Congress is in a rush to push legislation addressing the failures of Silicon Valley Bank and Signature Bank: BBG

A more detailed look at global markets courtesy of Newsquawk

Asia-Pac stocks sustained the momentum from Wall St where the major indices rallied for a second consecutive day. ASX 200 was firmer as energy and the consumer sectors spearheaded the advances in the index which climbed back above the psychological 7,000 level. Nikkei 225 was boosted as it played catch-up on its return from holiday amid notable strength in the banking industry and with Japan set to allocate more than JPY 2tln from reserves for measures to cushion the blow to the economy from rising prices. Hang Seng and Shanghai Comp. conformed to the upbeat mood with initial outperformance in Hong Kong, while the advances in the mainland were limited after the PBoC’s liquidity drain and with with reports yesterday suggesting the US is seeking to prevent China from benefitting from its USD 52bln chip funding.

Top Asian News

  • Taiwan’s President Tsai plans to transit through New York and LA as part of her trip to Central America, while the Deputy Defence Minister said the Defence Ministry has contingency plans for all moves by China during President Tsai's overseas trip, according to Reuters.
  • Japanese Chief Cabinet Secretary Matsuno said they will allocate more than JPY 2tln from reserves for measures to cushion the blow to the economy from rising prices, according to Reuters.
  • Japan maintains overall economic view; cuts Industrial Output view for first time since December 2022; cuts Corporate Profits view for first time since April 2020.

European bourses are mostly in the green, Euro Stoxx 50 +0.3%, as the constructive APAC tone continues though benchmarks are confined to pre-FOMC ranges. Upside with the exception of the FTSE 100 -0.2% following hot UK CPI and a subsequent hawkish shift in pricing for Thursday's BoE; 25bp now priced, ~10% chance of 50bp implied. Sectors are mixed with Banking names outperforming once again while defensively-biased sectors are lagging and incrementally softer. Stateside, futures are confined to narrow pre-FOMC parameters and are little changed/slightly softer, ES -0.1%

Top European News

  • UK government said GBP 1.8bln was awarded to boost energy efficiency and cut emissions of homes and public buildings across England, according to Reuters.
  • ECB's Nagel said the fight against inflation is not over and that rate-setters must be more stubborn in the inflation fight, while he added there is still some way to go but we are approaching restrictive territory, according to FT.
  • ECB's Lagarde says they are neither committed to hiking nor is the ECB finished with hiking; can see a more-prolonged cost-push coming from wage growth.
  • ECB Lane says there are reasons to believe that underlying inflation measures will ease over time; inflation falling is predicated on wage growth peaking this year.
  • Greek PM announces May elections following the rail disaster, according to AFP News Agency.
  • French and German banks reportedly are facing "a 500-fold increase" in capital requirements for trades in India from May after the ESMA said there were no talks with India to resolve a dispute, FT reports.


  • The USD is on the back-foot ahead of the FOMC and Powell's presser with the index's downside largely a function of hot UK CPI.
  • Specifically, DXY slipped below 103.00 to a 10297 trough as Cable has been lifted to an unsuccessful test of 1.23 from a 1.2209 trough alongside a marked hawkish shift in BoE pricing.
  • Action which has prevented the EUR from extending convincingly beyond Tuesday's ranges, with EUR/GBP down to a 0.8773 low.
  • Antipodeans are the next best performers, though this action occurs following marked pressure in recent sessions and is more of a consolidation than a concerted move higher thus far.
  • At the bottom of the G10 pile are the JPY and CHF with the havens little changed overall given the firmer risk tone but with pre-FOMC tentativeness preventing any real downside thus far.
  • PBoC set USD/CNY mid-point at 6.8715 vs exp. 6.8710 (prev. 6.8763)

Fixed Income

  • Gilts are under marked pressure following February's CPI release showing an unexpected uptick in price pressures, with EGBs down in sympathy.
  • Specifically, Gilts dropped below 104.00 to a 103.53 trough with the 10yr yield testing 3.50% while Bunds slipped to a 135.24 low.
  • Stateside, USTs came under some modest pressure but remain flat/firmer around 114.10 ahead of the US policy announcement with the yield curve mixed and slightly steeper currently.


  • Commodities are experiencing some modest divergence, with crude softer while metals are flat/firmer.
  • WTI & Brent are in the red but holding around the mid-point of circa. USD 1/bbl parameters with specific drivers limited aside from weekly crude reports.
  • Spot gold resides just under USD 1950/oz ahead of the afternoon's risk events while base metals glean support from the firmer risk tone.
  • Petroecuador declared a force majeure on three oil blocks due to community protests.
  • JPMorgan sees iron ore at USD 100/t in Q4 2023 (vs current spot USD 120/t).


  • Ukrainian President Zelensky invited China for talks on Ukraine but is waiting for an answer. it was separately reported that Zelensky said they need ammunition from partners and need it now, according to Reuters.
  • Russian forces have almost completely surrounded Bakhmut, according to Donetsk's pro-Russian authorities cited by Al Jazeera.
  • US said there are no signs that the summit between Chinese President Xi and Russian President Putin will lead to peace in Ukraine, according to FT.
  • Syrian Defence Ministry said an Israeli air strike targeted Syria's Aleppo International Airport and caused some damage to it, according to Reuters.
  • US and South Korea are planning to conduct South Korea's "largest ever" live-fire drills in June as part of a program for the 70th anniversary of the alliance between the two countries, according to Bloomberg.
  • North Korea is suspected to have fired a cruise missile on Wednesday, according to South Korean press Chosun; "North Korea launches several cruise missiles", according to Yonhap

US Event Calendar

  • 07:00: March MBA Mortgage Applications, prior 6.5%
  • 14:00: March FOMC Rate Decision (Upper Boun, est. 5.00%, prior 4.75%

DB's Jim Reid concludes the overnight wrap

Markets put in another broadly positive performance over the last 24 hours, which makes it the first time since SVB’s collapse that we’ve had two decent sessions in a row. We’ll have to see if this is maintained, and there’ve certainly been false dawns before, but yesterday saw several milestones that added to the optimistic mood. Among others, bank stocks experienced their best performance so far this year, the VIX index of volatility fell to its lowest level since the current turmoil began, and the S&P 500 closed above its level on March 8 before worries about SVB surfaced in markets more broadly. We also saw another day of historic rates moves, with the 2yr German yield seeing its largest daily gain since 2008, at +25.6bps.

This more positive market sentiment has led to growing confidence that the Fed will follow through with a +25bp hike today, and futures are pricing in a roughly 82% chance they’ll go ahead with one. As the Fed come to that decision, it’s fair to say that had their discussions been on any of the last 8 business days, the tone could have been very different. Indeed, expectations of their decision today have bounced around considerably. Before the SVB collapse, Chair Powell had said in congressional testimony that they were “prepared to increase the pace of rate hikes”, which led investors to price in a strong chance of a 50bps move. But little more than a week later, after SVB had collapsed and with major concerns about Credit Suisse, just a 7.9bp hike was expected, signalling that markets were pricing in a pause as the most likely outcome. Since that low point however, more stable markets have led to a recovery in pricing, with a 20.6bps hike priced as we go to press this morning.

There’ll be plenty of focus on whether the Fed hike today, but just as important will be how they’re looking at the current turmoil and whether they still expect any more rate hikes after today. In their preview (link here), our US economists think that the ECB’s decision last week offers a relevant blueprint for the Fed: raise rates in line with expectations, drop forward guidance, but signal a continued tightening bias. As such they think the Summary of Economic Projections will be little changed from December, when it showed officials thought the Fed funds rate would be at 5.1% by year-end.

Ahead of all that, bank stocks put in a strong recovery yesterday as investor optimism grew that we might be past the worst. For instance, both Europe’s STOXX Banks index (+4.79%) and the US KBW Bank index (+4.95%) saw their best daily performances of 2023 so far. One factor helping sentiment were comments from US Treasury Secretary Yellen, who said that “similar actions could be warranted if smaller institutions suffer deposit runs that pose the risk of contagion”. That supported significant gains among several banks, including UBS (+12.12%) which posted its largest advance since March 2020. Furthermore, First Republic (+29.47%) witnessed a major rebound following its -90% decline over the previous two weeks, though intraday it was nearly 60% higher. On First Republic, the lender remains the source of continued concern for both major Wall Street banks and Washington DC. Last night, Bloomberg reported that CEOs of major US banks and lawmakers remain in talks to ensure there is not further contagion risk as well as discussing what would make the bank more attractive to potential investors or outright buyers. And speaking of banks, Marion Laboure on our team has published a report this morning (link here) discussing the events of the last couple of weeks, which also looks at how Bitcoin has reached its highest level since June and points out the recent weakening in the correlation between US equities and crypto.

This strength among bank stocks helped lead a broader equity rally yesterday, and the S&P 500 ended the day up +1.30% to surpass its level on March 8. That’s the first time in the last couple of weeks that the S&P has recorded back-to-back advances, and as it happens it’s also the index’s best start to a week so far this year. The more cyclical sectors helped power the rally, while the only sectors that lagged were defensives such as utilities (-2.05%) and consumer staples (-0.12%). The rise in cyclicals and growth-oriented stocks led the NASDAQ (+1.56%), the FANG+ index (+2.30%) and the small-cap Russell 2000 (1.88%) to outperform. This matched the tone in Europe, where the STOXX 600 was up +1.33% for the day.

The prospect of steadier market conditions meant that bond yields bounced back again yesterday. Indeed, the 10yr Treasury yield finished at its highs of the day, up +12.5bps to 3.609%, leaving it over +32bps above its intraday low on Monday morning. A big factor behind that has been the perception the Fed won’t need to cut rates as aggressively as anticipated only a few days ago, with the rate priced in for the December meeting up by a significant +31.5bps yesterday to 4.365%. Bear in mind that only a week ago we had over 100bps of rate cuts priced in for this year, and that’s now down to around “only” 60bps of cuts by year-end. This morning we’ve seen just slight tick down in yields again, with those 10yr Treasuries - 1.9bps lower at 3.59% as we go to print.

Over in Europe it was much the same story yesterday, with yields on 10yr bunds (+16.7bps), OATs (+14.3bps) and BTPs (+12.8bps) all recovering from their recent declines. That was even more pronounced at the front-end of the curve, with the 2yr German yield (+25.6bps) seeing its largest daily gain since September 2008. As in the US, that came amidst a re-evaluation of the ECB’s policy trajectory, with another 25bp hike being priced in for the year ahead over the course of the day. This upbeat tone has been echoed by Asian equity markets overnight. All the major indices are in positive territory, including the Nikkei (+2.08%), the Hang Seng (+1.85%), the KOSPI (+1.07%), the CSI 300 (+0.16%) and the Shanghai Composite (+0.11%). And futures are suggesting that will continue later on, with those on the Euro STOXX 50 up +0.29%, whilst those on the S&P 500 are up +0.06%. There were also signs of a declining global risk premium in FX markets, since the US Dollar index has fallen to its lowest level since February 3 this morning, having benefited from the flight into haven assets over recent days.

Looking at yesterday’s data, we had US existing home sales for February, which showed an unexpectedly large increase  to an annualised rate of 4.58m (vs. 4.2m expected), marking their highest level in 5 months. Otherwise, the German ZEW survey for March was a bit weaker than expected, with the expectations component falling to 13.0 (vs. 15.0 expected). That’s the first decline in the expectations component after 5 consecutive monthly gains. Finally, Canada’s CPI fell to +5.2% in February (vs. +5.4% expected), which is the slowest year-on-year growth in the headline rate since January 2022.

To the day ahead now, and the main highlight will be the Federal Reserve’s policy decision along with Chair Powell’s press conference. Other central bank speakers include ECB President Lagarde, and the ECB’s Villeroy, Lane, Rehn, Wunsch, Panetta and Nagel. Otherwise, data releases include the UK CPI release for February.

Tyler Durden Wed, 03/22/2023 - 08:13

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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…



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.



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.  


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:


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%

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…



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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