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Futures Steady Ahead Of Fed Minutes

Futures Steady Ahead Of Fed Minutes

US equity futures were steady, trading in a narrow 15 point range before the release of minutes from the…

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Futures Steady Ahead Of Fed Minutes

US equity futures were steady, trading in a narrow 15 point range before the release of minutes from the latest Fed meeting which may signal that the pace of rate hikes may slow. S&P500 futures up 0.1% by 7:30 a.m. ET, swinging between gains and losses, after the underlying index closed above 4,000 for the first time since Sept. 12 amid lighter trading before Thursday’s Thanksgiving holiday. Nasdaq 100 futures rose 0.1% after the tech-heavy index climbed 1.5% on Tuesday. Credit Suisse shares plunged below their record closing low after the bank warned of a fourth-quarter loss. Oil fell as the EU discussed imposing a price cap on Russian oil between $65 and $70 a barrel (which Russia will never comply with). The Bloomberg dollar index erased earlier declines. Ten-year US Treasury yields rose by one basis point.

In premarket trading, Nordstrom sank 10% after reporting late Tuesday that gross margin for the fiscal third quarter that trailed the average analyst estimate. The department-store operator also reiterated its full-year outlook despite topping analysts’ expectations for adjusted earnings per share and revenue. The stock had ended Tuesday’s regular session at the highest level in three months amid a rally among retail shares. Tesla gained after Citigroup upgraded the electric-vehicle maker to neutral from sell. Here are some other notable premarket movers:

  • Manchester United shares jump 11% in US premarket trading as the owners of the football club, the Glazer family, work with financial advisers on a partial sale of the club or investments including stadium and infrastructure redevelopment.
  • Cryptocurrency-exposed stocks rally anew as Bitcoin extended its rebound into a second session, though investors were keeping an eye out for signs of any contagion from the collapse of Sam Bankman-Fried’s FTX empire. Coinbase +3.6%, Riot Blockchain +3.8%, Marathon Digital +4%, Core Scientific +11%
  • Keep an eye on Medtronic as the stock was cut to neutral from buy at Citi, with the broker saying the medical-equipment group’s quarterly results were the “straw that broke the camel’s back.”
  • MacroGenics shares gained about 4% in postmarket trading on Tuesday after Guggenheim Securities raised its rating on the stock to buy from neutral, citing a stronger balance sheet and near-term clinical data catalysts.

The publication of minutes from the Fed’s Nov. 1-2 meeting -- due at 2 p.m. in Washington -- will be studied for how united policymakers were over a higher peak for interest rates than previously signaled in their inflation fight. Some investors anticipate that lower-than-estimated inflation figures could prompt the Fed to temper the size of its rate hikes as early as at next month’s gathering. After an initial shock from Chair Jerome Powell’s comments earlier this month, US equities have turned higher on expectations that lower-than-estimated inflation figures could prompt the Fed to tame the size of its rate hikes.

The minutes are “likely to shed some light into how many FOMC members are becoming concerned about policy lags and the impacts of such lags on the US economy,” said Michael Hewson, chief market analyst at CMC Markets UK. “With Fed Chair Powell keen to impress on the market that he wants to limit the scale of advances in the equity markets, it will be interesting to see how many other Fed officials share that view.”

The Stoxx Europe 600 crept 0.1% higher to a fresh three-month high as travel and leisure and mining stocks gained. FTSE 100 outperforms peers, adding 0.5%, FTSE MIB lags, dropping 0.3%. Miners, travel and energy are the strongest performing sectors.  Credit Suisse Group shares dropped below their record closing low after the bank warned of a fourth-quarter loss and revealed a record $88 billion outflow. Here are the most notable European movers:

  • Britvic shares rise as much as 4.9% after the UK soft-drinks maker reported full-year sales and earnings that beat estimates. Goodbody said the results bode well for the year ahead.
  • Glencore gains as much as 4.8%, the most since Nov. 4, after Bernstein analysts upgraded the miner to outperform from market perform, saying it is best positioned to take advantage of thermal coal prices amid the gas shortage in Europe.
  • CTS Eventim shares climb as much as 5%, touching the highest since June, after Baader raised the ticket seller to add from reduce, saying it is delivering a “very strong business recovery.”
  • Rotork shares rise as much as 4.5%. The industrial valve maker’s reiterated guidance and in-line results should be welcome, while the margin outlook is also positive, analysts said.
  • Endesa shares drop as much as 6.5%, the most intraday since June, after the Spanish utility gave guidance for lower-than-expected profits for the next two years.
  • Credit Suisse drops as much as 6.2% after the troubled lender said it will book a loss of up to 1.5b Swiss francs for the fourth quarter and reported further outflows of wealth management funds. Vontobel said massive net outflows in wealth management are “deeply concerning.”
  • Siemens Healthineers shares fall as much as 4.5% after it was cut to hold from buy at Jefferies, with the broker seeing limited scope for any upside in the medtech group’s FY23 guidance.
  • EMS-Chemie shares drop as much as 4.7% after the chemicals company warned on profits, citing worsening demand from the automotive sector.

European investors digested data showing that private-sector activity in Germany and France -- the euro area’s top two economies -- contracted in November, painting a bleak picture for a region that may already be in recession. A separate survey showed that the UK economy is in recession, with the downturn expected to worsen into 2023.

Earlier in the session, Asian stocks advanced as investors awaited the Federal Reserve’s minutes to assess the US rate-hike path while weighing risks from China’s Covid lockdowns and regulatory crackdown.  The MSCI Asia Pacific excluding Japan Index climbed as much as 0.7%, led by gains in tech and energy stocks. Alibaba and other Chinese internet firms were the biggest individual contributors to the measure’s gain.  Equities in Hong Kong snapped a five-day losing streak while those in mainland China closed with a small gain as investors analyze impact of virus curbs. Traders were also cautious following a report that Chinese authorities are planning to impose a fine of more than $1 billion on Jack Ma’s Ant Group. Elsewhere, benchmarks in Australia, Taiwan, South Korea and Indonesia posted moderate gains. Japan’s markets were closed for a holiday.  In a move to fight the spread of Covid, Shanghai will ask new arrivals into the city to stay away from public venues for five days starting from Thursday, as Chinese authorities revert to tougher virus restrictions amid a nationwide surge in infections. “China Covid will continue to create volatility, but it wasn’t completely unexpected and is somewhat priced in,” said Charu Chanana, senior markets strategist at Saxo Capital Markets. “For now, equities are getting a push from weaker yields overnight and expectations that FOMC minutes may be dovish.”  The minutes of the Fed’s November meeting will likely reveal a consensus among policymakers that the central bank needs to slow rate hikes. Investors are also digesting a slew of corporate earnings from Asia.

Indian shares rose for a second straight day, helped by gains in banking stocks. A drop in index-heavy Reliance Industries and software firms trimmed gains.  The S&P BSE Sensex gained rose 0.2% to 61,510.58 in Mumbai, while the NSE Nifty 50 Index added 0.1%. Twelve of BSE Ltd.’s 19 sector sub-gauges gained, led by a measure of banking stocks, trading close to a record high after climbing about 21% this year.  Foreign investors have largely been buyers of local shares since end of September. However, the global funds are also taking profit from some of top performers regularly.

Australian stocks rose to the highest since June as miners gained. The S&P/ASX 200 index rose 0.7% to close at 7,231.80, extending gains for a second session, following Wall Street higher amid positive earnings and a focus on Federal Reserve minutes due later Wednesday.  Mining and bank shares contributed most to the benchmarks advance.  In New Zealand, the S&P/NZX 50 index fell 0.8% to 11,323.80, as the central bank raised interest rates by a record 75 basis points and signaled further tightening ahead, stepping up its inflation fight even as it forecasts a recession next year

In FX, Bloomberg dollar spot index flatlined as G-10 peers moved in narrow ranges. Scandinavian currencies were the best G-10 performers while the yen and the Canadian dollar were the worst.

  • The New Zealand dollar pared gains after earlier advancing by as much 0.7% versus the greenback. The Reserve Bank of New Zealand raised interest rates by 75 basis points, as expected, and said rates will peak at 5.5% instead of 4.1%, and forecasts a recession next year as it seeks to contain inflation. The nation’s 2-year bond yield added 20bps
  • The euro steadied around $1.03. European bond curves flattened and underperformed Treasuries as markets priced in more ECB tightening following RBNZ’s hawkish move. 2-year Bund yields added 7bps while the 10-year yield rose 1bp. Italian bonds outperformed bunds.
  • The pound traded little changed against the US dollar and the euro. Currency traders are focusing on an upcoming Supreme Court ruling on whether the semi-autonomous Scottish government can call a second independence referendum without approval from the UK government

In rates, Treasuries were narrowly mixed with the curve continuing to flatten; long-end yields traded slightly richer on the day, front-end and belly cheaper. 10-year Treasury yields were cheaper by 1bp on the day at around 3.765% with bunds trading cheaper by 1bp in the sector; 30-year dipped below 3.81% for first time since Oct. 7, aided by prospect of a big index duration extension at next week’s month- end rebalancing. Bunds underperformed with long-end yields cheaper by over 5bp on the day following PMI numbers and German 30-year bond sale. US session features heavy economic data slate including PMIs and University of Michigan sentiment. The Gilt curve bull flattens with 2s10s narrowing 5.7bps. Peripheral spreads tighten to Germany.

In commodities, Bloomberg reported that EU is considering a price cap on Russian oil of $65-70bbl; several EU diplomats reportedly said the proposed level was too high. Subsequently, the G7 is looking at a price cap on Russian seaborne oil in the $65-70/bbl level, via Reuters citing a European official. Crude was capped by the latest oil cap reports ahead of a potential EU Ambassadors discussion; benchmarks gave up their initial modest consolidation and now post downside of near 2.0%. WTI and Brent Jan’23 futures fell to session lows $78.94/bbl and $85.96/bbl vs $81.30/bbl and $88.80/bbl respectively prior to the below source reports. Spot gold fell roughly $4 to trade near $1,737/oz, base metals were pressured by China's latest crackdown measures..

Looking to the day ahead now, and the main data highlight will be the global flash PMIs for November, along with the US weekly initial jobless claims, preliminary durable goods orders for October, and new home sales for October. From central banks, we’ll get the minutes from the FOMC meeting earlier this month, and there’ll be remarks from ECB Vice President de Guindos, the ECB’s de Cos and Centeno, and BoE chief economist Pill. Finally, earnings releases include Deere & Company.

Market Snapshot

S&P 500 futures up 0.2% to 4,019.00

Brent Futures up 1.1% to $89.29/bbl

Gold spot down 0.2% to $1,737.60

U.S. Dollar Index down 0.2% 107.05

 

Top Overnight News from Bloomberg

  • The ECB should move carefully as it starts shrinking its balance sheet, opting for a “passive” approach to so-called quantitative tightening, according to Vice President Luis de Guindos
  • The EU watered down its latest sanctions proposal for a price cap on Russia’s oil exports by delaying its full implementation and softening key shipping provisions
  • Europe PMI manufacturing and services unexpectedly rose in November, according to S&P Global. While it still firmly indicates a recession in the 19-nation region is underway, it offers some room to think the downturn may be shallower than previously predicted.
  • UK Prime Minister Rishi Sunak suffered a blow to his authority as he struggled to quell Conservative rebellions on multiple policy fronts, and downcast MPs threatened an exodus from Westminster ahead of the next election
  • The UK economy is in recession with the downturn expected to worsen heading into 2023, a key survey warned. S&P Global said its poll of purchasing managers suggests the economy is shrinking at a quarterly rate of 0.4%. Gloom was widespread in November, with services firms seeing new business fall at the fastest pace for almost two years
  • China’s purchases of machines to make computer chips fell 27% last month from a year earlier as the US imposed new, sweeping sanctions to try and derail the country’s chip ambitions

A more detailed look at global markets courtesy of Newsquawk

Asia-Pac stocks took impetus from the positive handover from Wall St where sentiment was underpinned amid a global risk revival despite the lack of fresh catalysts but with upside capped amid Japan's holiday closure, tighter COVID rules in China and following the RBNZ's historic rate hike. ASX 200 was led by strength in the mining-related industries and with the energy sector front running the advances although the index is limited by underperformance in tech. NZX 50 was the laggard following the RBNZ’s 75bps rate hike and hawkish revisions to its OCR view which it now expects to peak at 5.50% (prev. 4.10% view), while the Committee had considered either a 75bps or 100bps move compared with analysts’ forecasts of either a 50bps or 75bps hike heading into the meeting. Hang Seng and Shanghai Comp were both higher, albeit with price action in the mainland choppy amid COVID concerns after several key cities tightened restrictions and testing requirements.

Top Asian News

  • PBoC adviser Wang Yiming sees China's 2023 GDP growth to likely be above 5% if the impact of COVID ends but noted growth will depend on the rollout of support measures and that support measures are needed to lift market confidence and consumption. Wang stated there is limited room for China to cut interest rates and slower Fed hikes in H1 2023 will provide China with more policy room.
  • Shenzhen will require 48-hour COVID tests to access public venues and Chengdu will conduct mass testing on November 23rd-27th, while Tianjin is to conduct complete city testing on November 24th-25th.
  • RBNZ hiked the OCR by 75bps to 4.25%, as expected, while it stated that monetary conditions need to tighten further and that the Committee considered a 75bps or 100bps rate increase. RBNZ said consumer price inflation is too high and the Committee agreed the OCR needs to reach a higher level and sooner than previously indicated. Furthermore, the RBNZ noted near-term inflation expectations have risen and it raised its OCR projections with the OCR expected to peak at 5.5% by December 2023 vs prev. forecast of 4.10%.
  • RBNZ Governor Orr said during the press conference that there will be a shallow recession but noted economic activity remains high and spending is strong, while the RBNZ also noted that they are mature in the tightening cycle and closer to the end than the beginning but added that new shocks are arriving all the time.
  • Beijing is set to maintain COVID curbs until a turning point appears, according to reports via Bloomberg; requests residents do not unnecessarily leave the city.
  • China's cabinet will make adjustments to the RRR at an appropriate time, via Reuters citing State Media; will encourage commercial banks to issue loans to guarantee the delivery of homes.

UK Chancellor Hunt and BoE Governor Bailey are to reduce the maximum authorised size of the APF to GBP 871bln (prev. GBP 886bln), according to a BoE statement. Moody's said the UK government set out an ambitious consolidation plan but added that low confidence in the delivery hampers its credibility, according to Reuters. UK Supreme Court rules that Scotland cannot hold an independence referendum without approval from the British government. ECB's de Guindos says it is likely we will see negative Q4 growth rates within the EZ. Upcoming inflation projections will still be high, before starting to slow in Q1-2023; will show core also remains high.

Top European News

  • UK Chancellor Hunt and BoE Governor Bailey are to reduce the maximum authorised size of the APF to GBP 871bln (prev. GBP 886bln), according to a BoE statement.
  • Moody's said the UK government set out an ambitious consolidation plan but added that low confidence in the delivery hampers its credibility, according to Reuters.
  • UK Supreme Court rules that Scotland cannot hold an independence referendum without approval from the British government.
  • ECB's de Guindos says it is likely we will see negative Q4 growth rates within the EZ. Upcoming inflation projections will still be high, before starting to slow in Q1-2023; will show core also remains high.

Fixed Income

  • UK debt rampant ahead of DMO supply and comments from BoE's Pill, with Gilts posting a fresh 107.00+ post-mini budget collapse high
  • Bunds tag along, but lag BTPs, former flat between 140.59-139.77 parameters and latter nearer top of 119.42-118.31 range
  • US Treasuries trailing with no cash trade overnight and a hectic agenda looming on the eve of Thanksgiving, T-note subdued within a 112-21+/112-12 band

Commodities

  • Crude capped by oil cap reports ahead of a potential EU Ambassadors discussion; benchmarks gave up their initial modest consolidation and now post downside of near 2.0%.
  • WTI and Brent Jan’23 futures fell to session lows USD 78.94/bbl and USD 85.96/bbl vs circa. USD 81.30/bbl and USD 88.80/bbl respectively prior to the below source reports.
  • US Private Energy Inventory Data (bbls): Crude -4.8mln (exp. -1.1mln), Cushing -1.4mln, Gasoline -0.4mln (exp. +0.4mln), and Distillate +1.1mln (exp. -0.6mln).
  • OPEC+ delegates said Saudi's denial of a production increase at the December meeting reflected an unease with public discussion of the group's decision-making before an agreement with Russia was struck, according to WSJ.
  • US Treasury Department issued new guidance on the implementation of a price cap policy for Russian crude and said the price cap will be set after a technical exercise is conducted by the price cap coalition. A Treasury official also noted hopes that the EU price cap consultation is concluded relatively soon to allow the coalition to announce a price, while the official added there is no reason to expect Russia will retaliate to a price cap by cutting oil output and warned that violation of price cap could be subject to civil or criminal penalties, according to Reuters.
  • EU is considering a price cap on Russian oil of USD 65-70bbl, according to Bloomberg sources; several EU diplomats reportedly said the proposed level was too high. Subsequently, the G7 is looking at a price cap on Russian seaborne oil in the USD 65-70/bbl level, via Reuters citing a European official.
  • EU Ambassadors will revert to the oil price cap discussion this afternoon in an attempt to agree on legislation for it today, according to WSJ's Norman's understanding.
  • For metals, spot gold and silver are diverging modestly but remain in close proximity to the unchanged mark as sentiment struggles for clear direction alongside a gradual pick-up in the USD, with base metals pressured by China's latest crackdown measures.

FX

  • Kiwi flies as RBNZ lives up to hawkish hype, and more, NZD/USD eyes 0.6200 and AUD/NZD cross breaches 1.0800 as Aussie lags vs Buck around 0.6650 in wake of weaker PMIs and more Chinese COVID contagion
  • DXY clings to 107.00 ahead of packed US agenda on the eve of Thanksgiving, Euro faded from 1.0300+ against Greenback after post-EZ PMI pop, but may glean support from hefty option expiries
  • Sterling underpinned around 1.1900 after better than forecast UK flash PMIs and Supreme Court rules against Scotland holding Independence vote independently
  • Yen flags following flirt above 141.00 in Japanese holiday-impacted trade
  • PBoC set USD/CNY mid-point at 7.1281 vs exp. 7.1307 (prev. 7.1667)

US Event Calendar

  • 07:00: Nov. MBA Mortgage Applications 2.2%, prior 2.7%
  • 08:30: Oct. Durable Goods Orders, est. 0.4%, prior 0.4%; - Less Transportation, est. 0%, prior -0.5%
    • Cap Goods Ship Nondef Ex Air, est. 0.1%, prior -0.5%
    • Cap Goods Orders Nondef Ex Air, est. 0%, prior -0.4%
  • 08:30: Nov. Initial Jobless Claims, est. 225,000, prior 222,000
    • Continuing Claims, est. 1.52m, prior 1.51m
  • 09:45: Nov. S&P Global US Manufacturing PM, est. 50.0, prior 50.4
    • Global US Services PMI, est. 48.0, prior 47.8
    • Global US Composite PMI, est. 48.0, prior 48.2
  • 10:00: Nov. U. of Mich. Sentiment, est. 55.0, prior 54.7
    • U. of Mich. Current Conditions, est. 57.8, prior 57.8
    • U. of Mich. Expectations, est. 52.5, prior 52.7
    • U. of Mich. 1 Yr Inflation, est. 5.1%, prior 5.1%
    • U. of Mich. 5-10 Yr Inflation, est. 3.0%, prior 3.0%
  • 10:00: Oct. New Home Sales, est. 570,000, prior 603,000
    • New Home Sales MoM, est. -5.5%, prior -10.9%
  • 14:00: Nov. FOMC Meeting Minutes

DB's Jim Reid concludes the overnight wrap

Morning from a taxi on the way to the airport and to Frankfurt. Germany are playing their first World Cup game today so I'm not sure anyone will be at the event I'm presenting at! However at least i have an excuse if they are not. Shame I'm not off to Saudi Arabia as they have declared today a national holiday after the shock defeat of the team I have in the office sweepstake, namely Argentina!

Markets have been a bit more Saudi than Argentina over the last 24 hours, with bonds and equities moving higher despite the negative mood music that continues to overshadow markets. It perhaps hints at the technicals in the market that our equity strategists have repeatedly highlighted in recent weeks. See their updated thoughts here on how long the bear market rally might last.

In fact, not only did the Covid situation in China take a fresh turn for the worse yesterday, but we also had a fresh round of threats about a cut-off in the remaining flow of Russian gas to Europe. Both of these could have significant ramifications for the global economy more broadly, since China plays a critical role in supply chains that could have ramifications for global inflation in the event of further lockdowns, whilst Europe is already facing a critical energy situation this winter. Our German economics team did though acknowledge the improved outlook of late in a note here last night but they still believe a recession is baked in the sand with a notable real incomes squeeze. The flash PMIs today will be an important barometer in terms of how Europe is fairing.

When it comes to the latest developments in China, restrictions ramped up further yesterday against the backdrop of steadily rising case numbers. Shanghai said that new arrivals would not be allowed to enter public venues for the first five days, and would also be required to take three PCR tests within three days of their arrival. Meanwhile, Beijing said that residents would need a negative PCR test in the previous 48 hours to enter public venues and take buses, and Guangzhou said they would be extending Covid restrictions in parts of Haizhu district until the end of November 27. China-exposed stocks continued to struggle on the back of this. For instance, the NASDAQ’s Golden Dragon China index fell a further -1.43% yesterday, thus bringing its losses over the last 3 sessions to -7.77%, albeit +26.13% of the lows on October 24 after the reopening speculation started to build. That index contains US-listed stocks for whom most of their business is done in China, so offers a barometer of sentiment outside of trading hours in Asia. Overnight, Chinese equities themselves are trading in negative territory with the Shanghai Composite (-0.38%) and the CSI (-0.36%) edging lower as the daily Covid-19 infections continue to climb.

As we said yesterday it can be possible for China to tighten restrictions quite firmly in the near term but loosen them more sustainably by the spring. So its a difficult one to trade but I suspect what they do from spring onwards should be the most important.

Indeed, the negative developments in China failed to dampen risk appetite more broadly however, and the major equity indices climbed on both sides of the Atlantic. By the close of trade, the S&P 500 had advanced +1.36%, and Europe’s STOXX 600 even hit a 3-month high thanks to a +0.73% advance. To be fair in Europe, sentiment was boosted by some better-than-expected consumer confidence data, with the European Commission’s number for the Euro Area hitting a 5-month high of -23.9 (vs. -26.0 expected). Oil prices also benefited from the risk-on moves, with Brent crude (+1.03%) ending a run of 4 consecutive declines to close at $88.35/bbl. It dipped to $82 late on Monday as OPEC+ cuts were speculated upon before a subsequent Saudi denial.

Speaking of energy, the European Commission outlined their proposals for an emergency break on natural gas prices yesterday. But the cap was set at €275 per megawatt-hour (more than twice the current level), and would only come into force if futures on the front-month TTF exceed that for two weeks, and if TTF prices are also €58 higher than the LNG reference price for 10 consecutive trading days in the last two weeks. So even during the summer spike when gas prices peaked above the €275 level, the cap wouldn’t have come into force since prices didn’t remain there for two weeks. The measures still require approval from EU member states, and EU energy ministers are set to discuss the proposal in Brussels tomorrow.

Those proposals from the EU came as Gazprom threatened to cut gas flows to Europe via Ukraine yesterday, with Gazprom saying that Ukraine had taken gas that was meant for Moldova. In response, they warned they may limit volumes from November 28 based on the amount of gas not getting to Moldova. But the concern for the rest of Europe will be that previous threats from Russia to reduce volumes by a small amount end up resulting in much larger reductions, and this could be the start of a total shutdown that cuts off the last remaining pipeline to western Europe. In response, natural gas futures ended the day up by +7.21% at €124 per megawatt-hour, marking their third consecutive daily increase.

Adding to the downbeat backdrop, the US 2s10s curve pressed deeper into inversion territory for an 8th consecutive session yesterday, hitting a post-1981 low of -76.27bps. That trend wasn’t just confined to the US however, with the German 2s10s curve similarly hitting a post-2009 low of -13.8bps. That came as policymakers continued to strike a firm tone on the need to rein inflation back in, with Cleveland Fed President Mester saying that “restoring price stability remains the number one focus of the FOMC”. The November FOMC Minutes are due today. The big takeaway from the meeting was that the Fed was ready to break their streak of +75bp hikes by stepping down to a +50bp hike in December, a message well-received by the market in subsequent weeks, with +52.0bps now priced for the December meeting. While stale in that regard, the Chair also paired the stepdown to +50bp hikes with a higher terminal rate, so we’ll be looking for any indication that the rest of the Committee agrees, and if so, how much higher terminal may need to go to restrict financial conditions adequately.

Over in Europe, the debate also continued on whether the ECB should raise rates by 50bps or 75bps as well. Austria’s Holzmann echoed his hawkish remarks from the previous day, saying that he was in favour of a 75bps hike based on the current data. But Bundesbank President Nagel said “it would be too hasty to commit to how big the next rate hike could be”. Finally, Lithuania’s Simkus said that “50 basis points is a must”, and that since “we still see very strong inflation pressures and we need to dampen them as soon as possible to prevent a de-anchoring of inflation expectations. 75 is also possible.” By the close of trade, yields on 10yr Treasuries (-7.1bps), bunds (-1.3bps) and OATs (-1.5bps) had all moved lower.

Outside of China, Asian equity markets are mostly trading higher this morning following the overnight rally on Wall Street. As I type, the Hang Seng (+0.42%) is trading higher, recovering from its earlier losses with the KOSPI (+0.46%) also in the green. Elsewhere, markets in Japan are closed for a holiday.US stock futures tied to the S&P 500 (-0.07%) are little changed.

A big surprise came from the Reserve Bank of New Zealand (RBNZ) as the central bank delivered a 75bps hike, its biggest rate hike on record as it struggles to contain rising inflation. The Monetary Policy Committee (MPC) increased the Official Cash Rate (OCR) from 3.5% to 4.25% while signalling further tightening ahead. At the same time, it also warned that economic growth will slow in the near-term due to the shock of rising interest rates and elevated inflation. Shortly after the decision, yields on the policy-sensitive 2yr bond moved sharply higher (+26 bps), trading at 4.58% with the 10yr yields briefing touching 4.27% before retracing back to 4.20% as we go to print.

Separately we have data from Australia showing that the preliminary PMI indices all weakened in November. The S&P Global manufacturing PMI dropped to 51.5 from the prior month’s level of 52.7 but more importantly the services sector PMI contracted further to a weak looking 47.2 following a level of 49.3 in October.

There wasn’t much data of note yesterday, although the Richmond Fed’s manufacturing index for November came in at -9 (vs. –8 expected). Otherwise, the OECD released their latest economic outlook, projecting global growth of just +2.2% in 2023 and +2.7% in 2024. If that +2.2% number is realised, that would make 2023 the third-worst year of the 21st century so far for global growth, behind only 2020 with the pandemic and 2009 with the GFC.

To the day ahead now, and the main data highlight will be the global flash PMIs for November, along with the US weekly initial jobless claims, preliminary durable goods orders for October, and new home sales for October. From central banks, we’ll get the minutes from the FOMC meeting earlier this month, and there’ll be remarks from ECB Vice President de Guindos, the ECB’s de Cos and Centeno, and BoE chief economist Pill. Finally, earnings releases include Deere & Company.

Tyler Durden Wed, 11/23/2022 - 08:04

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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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