Connect with us

Three Deals Needed ahead of Holiday Weekend

Three Deals Needed ahead of Holiday Weekend

Published

4 years ago

on


Overview: Three deals need to be struck.  First, the Eurogroup of finance ministers needs to reach an agreement of proposals for joint action to the heads of state.  Second, oil producers need to cut output if prices are to stabilize.  Third, the US Congress needs to strike a deal to provide more funding.  Investor seems hopeful, and risk appetites are have lifted equities.  Markets in the Asia Pacific region outside of Japan and Taiwan rose, led by 3%+ gains in Australia and India.  Europe's Dow Jones Stoxx 600 is pushing higher and has now met a (38.2%) retracement of this year's decline, while US shares are firmer, and the S&P 500 is closing in on a 50% retracement (~2793). Core bond yields are a little lower, with the US 10-year yield off three basis points to 0.74%.  Peripheral bond yields are firmer, with Italy's benchmark yield rising six basis points. The dollar is mixed.  The Scandis are leading the European currencies higher, while the dollar bloc and yen as nursing small losses.  Gold is straddling the $1650 level while oil is firm but continues to consolidate pending new developments.   Russia appears to have signaled that it could reduce its output by 1.6 mln barrels a day (~15%).  

Asia Pacific

Singapore reported an infection spike.  The re-opening of Wuhan that celebrated yesterday is looking more complicated as some restrictions have been tightened amid new flare-ups.  In Tokyo, confusion undermined the efforts to impose a lockdown after Economic Minister Nishimura, who heads the government's response to the pandemic, asked governors to hold off decisions to shutter businesses until after the Abe government assessed the impact of individual requests for individuals to stay home.   The state of emergency was to shut down about half the economy. 

The Bank of Japan cut the outlook of all Japan's regions.  The BOJ will meet later this month and update its forecasts.  In his speech to the regional branches, Governor Kuroda did not discuss inflation, and this omission was seen as a signal that the official inflation forecast will be cut. In turn, this is a prerequisite to embolden the BOJ further to address the economic crisis.  The preliminary estimate of a nearly 41% drop in March machine orders underscores expectations that the world's third-largest economy, which contracted in Q4, is contracting at a double-digit pace.  

Foreign investors have been aggressive sellers of Japanese assets in recent weeks but turned buyers last week.  A seven-week divest campaign sold foreign investors sell JPY5 trillion (~$46 bln) of Japanese equities before buying about JPY423 bln last week.  Foreign investors sold JPY6 trillion of Japanese bonds in the last full two weeks of Japan's fiscal year but bought back almost JPY500 bln last week.  Meanwhile, Japanese investors sold JPY1.06 trillion of foreign bonds last week.  There appears to be a bit of a seasonal pattern here as Japanese investors are often significant sellers of foreign bonds at the start of the new fiscal year. 

The dollar is confined to about a quarter of a yen range thus far today (~JPY108.80-JPY109.05). There is a nearly $960 mln option at JPY109 that will be cut today.  The dollar finished last week near JPY108.50.  It has traded in about a one yen range this week (~JPY108.30-JPY109.30).  The Australian dollar pushed above $0.6200 yesterday and reached $0.6250 today.  The $0.6270 area corresponds to the 50% retracement of this year's slump.  After falling in the last four sessions of last week, the Aussie has advanced in the four sessions of this week.  The dollar remains in the lower end of its range against the Chinese yuan, holding above CNY7.05 for the second day.   

Europe

Italy, which reports said yesterday, was considering how to unwind the national shutdown, has seen a rise in infections, and is now looking to extend the restrictions.  Germany saw the largest increase in new cases in five days.  Sweden, which is trying a different course to combat the infections, is being watched closely, though cases are still rising quickly.  

The UK has taken a significant step today: The government announced it would boost the size of its bank account with the Bank of England.  It is known as the "Ways and Means Facility" and usually is around GBP370 mln.  It did not specify a new limit, and it effectively allows the government to spend more money in the short-term without having to issue more debt.  During the Great Financial Crisis, the facility rose to about GBP20 bln.  Economists call this "direct financing of the government."  The Treasury insisted that the measures will be temporary and short-term, and assured that any overdraft would be repaid as soon as possible before the end of the year. Some observers are concerned that is may become permanent. Below the surface, there is likely tension with the Bank of England, as the new Governor (Bailey) seemed to rule out the use of the facility a couple of weeks ago. 

ECB President Lagarde as taken to the op-ed pages to press the European governments into a strong and coordinated fiscal response.  She is a clear advocate for the mutualization of costs to combat the virus and cushion economies.  As Finance Minister for France during the Great Financial Crisis, Lagarde was vocal then too, as France was, for the creditor nations to bear greater costs to support the euro area.  The lack of a stronger response then has led to an under-performance of the eurozone over the past decade.   The risk is a repeat of this pattern with ominous implications for the future and for the political climate in Europe going forward.  Former ECB President Trichet said that the North-South (creditor-debtor) in Europe is counterproductive.  It is, but it does not change the fact that the divide exists and defines, to no small measure, how EMU members define the problem and solutions.  

The euro is in less than half a cent range (~$1.0840-$1.0885).  Participants used to find such narrow ranges as boring, but after the neck-breaking and stomach-wrenching volatility, the quieter tone is welcome.  The euro is consolidating inside yesterday's range.  It settled last week near $1.08. Sterling is firm.  It has risen above the previous session's high for the third day running.  The key hurdle on the upside is $1.25, which has frustrated gains for the last two weeks.  With thinning volumes ahead of a long holiday weekend, the cap may remain intact.  

America


Shortly after the US reports another surge in weekly jobless claims, Fed Chief Powell will give an economic update via webcast (10:00 am ET).   It's not what the Fed is doing, but what else it may do that is of main interest. In particular, there are two main areas of interest outside of the Chairman's economic assessment.  The first is that the average effective Fed funds rate is has been trading at five basis points in recent days.  In the corridor system, the interest on reserves should be the floor, but that is at 10 bp.  The Fed could raise in interest on reserves, and it is reverse repo operations, which how it defends lower bound. 


The second issue is about the transmission mechanism of monetary policy, and another option in the playbook is what Japan introduced as yield curve control, and Australia adopted a similar strategy.  BOJ targets the 10-year bond yield, and the RBA targets the three-year bond yield.  A timely paper by Kenneth Garbade of the NY Fed reviewing the Fed efforts in this back in the 1940s and concludes that the central bank would need to take into account the volatility of interest rates and debt management policies. The latter may be particularly difficult given the explosion of US supply in the period ahead.  Garbade also warns that large scale open market operations may be necessary to adjust the shape of the yield curve on occasion. 

Separately, the US payroll protection program has been so successfully launched that it needs more funding.  The Senate is planning on a vote today for another $250 bln.  The Democrats are looking to double the size by adding $100 bln for hospitals and $150 bln for state and local governments.  

Canada publishes its March employment report today.  The jobless claims warn of a dramatic loss of jobs, but like we saw in the US, the national figures are not calculated the same way, and discrepancies are likely. Still, the median forecast in the Bloomberg survey calls for a loss of 500k jobs (remember the Canadian economy is roughly 1/10 the size of the US).  The median expects the unemployment rate to rise to 7.5% from 5.6%.  Meanwhile, Canada is adjusting the aid efforts by allowing news businesses to participate and lower the threshold of losses needed to qualify.  

The US dollar is trading broadly sideways against the Canadian dollar.  It has been confined to about a 50-point range above CAD1.40.  For the second consecutive session, it is making a lower high and a higher low.  Beyond yesterday's high (~CAD1.4080), an expiring option for $1 bln is struck at CAD1.41.  The CAD1.3925-CAD1.3945 offers support below CAD1.40.  After setting a record high on Monday against the Mexican peso, the greenback has eased, and around MXN23.80 now is at five-day lows.  It is slipping below the 20-day moving average (~MXN23.90) for the first time since late February.  The next support area is seen near MXN23.50.  
Disclaimer

Read More

Related Topics:
Continue Reading

Uncategorized

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.

Published

1 hour ago

on

March 8, 2024

By

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.

Read More

Continue Reading

Uncategorized

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…

Published

1 hour ago

on

March 8, 2024

By

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

Read More

Continue Reading

International

Angry Shouting Aside, Here’s What Biden Is Running On

Angry Shouting Aside, Here’s What Biden Is Running On

Last night, Joe Biden gave an extremely dark, threatening, angry State of the Union…

Published

2 hours ago

on

March 8, 2024

By

Angry Shouting Aside, Here's What Biden Is Running On

Last night, Joe Biden gave an extremely dark, threatening, angry State of the Union address - in which he insisted that the American economy is doing better than ever, blamed inflation on 'corporate greed,' and warned that Donald Trump poses an existential threat to the republic.

But in between the angry rhetoric, he also laid out his 2024 election platform - for which additional details will be released on March 11, when the White House sends its proposed budget to Congress.

To that end, Goldman Sachs' Alec Phillips and Tim Krupa have summarized the key points:

Taxes

While railing against billionaires (nothing new there), Biden repeated the claim that anyone making under $400,000 per year won't see an increase in their taxes.  He also proposed a 21% corporate minimum tax, up from 15% on book income outlined in the Inflation Reduction Act (IRA), as well as raising the corporate tax rate from 21% to 28% (which would promptly be passed along to consumers in the form of more inflation). Goldman notes that "Congress is unlikely to consider any of these proposals this year, they would only come into play in a second Biden term, if Democrats also won House and Senate majorities."

Biden also called on Congress to restore the pandemic-era child tax credit.

Immigration

Instead of simply passing a slew of border security Executive Orders like the Trump ones he shredded on day one, Biden repeated the lie that Congress 'needs to act' before he can (translation: send money to Ukraine or the US border will continue to be a sieve).

As immigration comes into even greater focus heading into the election, we continue to expect the Administration to tighten policy (e.g., immigration has surged 20pp the last 7 months to first place with 28% in Gallup’s “most important problem” survey). As such, we estimate the foreign-born contribution to monthly labor force growth will moderate from 110k/month in 2023 to around 70-90k/month in 2024. -GS

Ukraine

Biden, with House Speaker Mike Johnson doing his best impression of a bobble-head, urged Congress to pass additional assistance for Ukraine based entirely on the premise that Russia 'won't stop' there (and would what, trigger article 5 and WW3 no matter what?), despite the fact that Putin explicitly told Tucker Carlson he has no further ambitions, and in fact seeks a settlement.

As Goldman estimates, "While there is still a clear chance that such a deal could come together, for now there is no clear path forward for Ukraine aid in Congress."

China

Biden, forgetting about all the aggressive tariffs, suggested that Trump had been soft on China, and that he will stand up "against China's unfair economic practices" and "for peace and stability across the Taiwan Strait."

Healthcare

Lastly, Biden proposed to expand drug price negotiations to 50 additional drugs each year (an increase from 20 outlined in the IRA), which Goldman said would likely require bipartisan support "even if Democrats controlled Congress and the White House," as such policies would likely be ineligible for the budget "reconciliation" process which has been used in previous years to pass the IRA and other major fiscal party when Congressional margins are just too thin.

So there you have it. With no actual accomplishments to speak of, Biden can only attack Trump, lie, and make empty promises.

Tyler Durden Fri, 03/08/2024 - 18:00

Read More

Continue Reading

Trending