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Yen Pops on BOJ Comments on Inflation, but the Dollar holds Most of Yesterday’s Gains against the other G10 Currencies

Overview: The dollar is mixed as the market awaits
the US personal consumption expenditure deflator, which is the measure of
inflation the Fed targets….



Overview: The dollar is mixed as the market awaits the US personal consumption expenditure deflator, which is the measure of inflation the Fed targets. While there is headline risk, we argue that the signal has already been generated by the CPI and PPI releases. The yen is the strongest of the G10 currencies, up nearly 0.5%. The market shrugged off weak data that spurs speculation of a third quarterly contraction and focused on the comments from a BOJ board member that were consistent with the exit from negative interest rates in the coming months. Meanwhile, the Australian and New Zealand dollars remain fragile after yesterday's drubbing. Most emerging market currencies are firmer today, led by the Malaysian ringgit, where officials are threatening to intervene.

Asia Pacific equities were mixed, including in Japan where the Topix edged higher, but the Nikkei slipped. Mainland Chinese stocks rose with the CSI 300 up almost 2%. However, Chinese companies that trade in Hong Kong fell by about 0.2%. South Korea and Taiwan went in opposite directions as did Australia and New Zealand. Europe's Stoxx 600 is slightly firmer after falling by 0.35% yesterday. US index futures are trading softer. Bonds are selling off. European benchmark 10-year yields are 4-6 bp higher. The 10-year US Treasury yield is up four basis points to nearly 4.31%. Gold is a little softer but within yesterday's range (~$2024-$2038). April WTI is flattish near $78.50.

Asia Pacific

Japan's economy continues to struggle. After dropping 2.6% in January, the most since the early days of the pandemic, Japanese retail sales edged up by 0.8% in January. Although economists, including the IMF continue to bang the drum about weak Chinese consumption, though it has doubled on a per capita basis over the past decade and is growing, Japan has been given a free ride. In GDP terms, its consumption has fallen for three consecutive quarters through Q4 23. It might be stabilizing this quarter, but next week's labor earnings data will show real wages continue to lag inflation as has been the case since 2019 on an annual basis. Separately, Japan reported a dramatic 7.5% plunge in January industrial output. It grew by a little more than 1.2% all last year. Recall that a 7.5-magnitude earthquake struck northern Japan on January 1 and disrupted economic activity. There was also a safety scandal at a subsidiary of Toyota that also caused a temporary halt of production. A recovery appears underway this month. Factory output is expected to rise 4.8% this month and 2% in March. Separately, Japan reported a 7.5% drop in January's annualized housing starts, which last rose in May 2023.

However, the impact of the data was overwhelmed by the comments from Takata, from the BOJ board. He said that despite the economic uncertainties, the "price target is finally coming into sight." Takata said that the deflationary psychology was pivoting. Japan's 10-year yield edged up and the yen jumped. Indeed, the dollar was sold below the 20-day moving average (~JPY149.80) for the first time since the US employment data on February 2. The poor economic data and the softness of inflation may have seen some participants waver, but it still seemed to us that an exit from negative rates in April remained the most likely scenario. And that still is the base case.

China's PMI will be reported tomorrow. It will likely show the manufacturing sector continues to be challenged (below the 50 boom/bust level), as it has last March with one exception (September 2023). The non-manufacturing, which some suggest is a better reflection of domestic demand, held above 50 all last year. It finished 2023 at 50.4 and may have ticked up in February amid anecdotal reports of strong holiday activity. If it does rise, it would be for the third consecutive month. The composite PMI rose to a four-month high of 50.9. The Caixin manufacturing PMI will also be reported. It has fared better than the other one (from China Federation of Logistics and Purchasing.

The dollar held barely below the high set earlier this month near JPY150.90 yesterday and the BOJ comments today saw it fall to almost JPY149.60, the low since the US CPI on February 13. It recorded range that day of approximately JPY149.25-JPY150.90 and has been in that range ever since. The dollar settled last week near JPY150.50. It was the eighth consecutive weekly gain, and that streak is threatened now. The net speculative (non-commercial) short yen position in the futures market is the largest since last November. The Australian dollar stabilized after falling almost 1% yesterday but could not properly recover. After falling to about $0.6490, the Aussie could barely trade above $0.6505 in North America. Today, it rose slightly above $0.6520 in the Asia Pacific session but is slipping back below $0.6500 in the European morning. The $0.6475 area stands in the way of a retest on the year's low near $0.6440 when the US CPI was reported on February 13. The recovery of the yen helped Chinese officials defend the CNY7.20 level. The PBOC set the dollar's reference rate at CNY7.1036 (CNY7.1075 yesterday). This allows the dollar to trade in a range of roughly CNY6.9615 to CNY7.2457. The average projection in Bloomberg's survey was CNY7.1935 (CNY7.2004 yesterday). 


The preliminary estimate of the eurozone's February CPI will be reported tomorrow. The median forecast in Bloomberg's survey is for a 0.6% increase after a 0.4% decline in January. Recall that in February 2023, the CPI rose by 0.8%. That means that the year-over-year rate can slip to 2.5%-2.6% from 2.8% in January. The eurozone's CPI jumped by 0.9% and 0.6% in March and April 2023, and will be replaced with more moderate numbers this year. This means that when the ECB meets on April 10, CPI will be close to 2% and poised to slip below the target. German states reported softer year-over-year CPI today and the aggregate harmonized measure, due shortly, is expected to fall to 2.7% from 3.1%. France's harmonized measure fell to 3.1% from 3.4%. Spain's eased to 2.9% from 3.5%. The swaps market has nearly a 90% chance of a rate cut in June. Three cuts and about 40% chance of a fourth cut are reflected in the swaps market.

The euro briefly slipped below $1.08 for the first time in a week yesterday just at start of the European session. It recovered back to the session high, slightly below $1.0850 before it consolidated in dull dealings in the North American afternoon. The bulls may see a hammer candlestick, and the 20-day moving average held (~$1.0790), which is also the halfway point of the bounce from the February 14 low slightly below $1.07. The euro managed to settle above the 200-day moving average (~$1.0830). It had advanced for eight of the ten sessions through Monday and brings a two-day decline into today. It has traded with a firmer bias today and edged up to almost $1.0855. The week's high was set on Tuesday near $1.0865 and recapturing this would help the technical tone. Sterling's price action was also not impressive, and it did briefly trade below its 20-day moving average (~$1.2630). It recovered about half-of-a-cent before sellers reemerged and knocked it back to $1.2645. Sterling had not fallen since February 19. It is in less than a quarter-cent range today below $1.2675. With little market reaction, the UK named the OECD's Chief Economic Economist Lombardelli to succeed Broadbent as deputy governor of the Bank of England, whose term ends July 1. Today's byelection in the Rochdale is very idiosyncratic and will be difficult to generalize. Separately, there are reports of discussions between the US and the UK about the potential security risks of holding national elections around the same time. 


Although US Q4 23 GDP was revised lower (3.2% vs. 3.3%) consumption was revised higher (3.0% vs. 2.8%). The deflators were also tweaked higher. However, the January data reported yesterday disappointed. The advanced merchandise trade deficit widened to a six-month high of $90.2 bln, and retail inventories rose by 0.5% after a 0.6% increase in December. Wholesale inventories slipped by 0.1%. This is consistent with the recent pattern whereby wholesalers are reducing inventory while retails ae see their inventories rise. Last year, wholesale inventories fell by an average of 0.2% Retail inventories rose by an average of 0.4% a month last year.

Today's focus is on the personal income, consumption, and deflators. If US economic activity is going to moderate, the consumer is key. Personal consumption expenditures rose by an average of 0.5% a month last year. The weakness in retail sales hinted at a pullback in the American consumer, who buys more services than goods. The median forecast in Bloomberg's survey is for a 0.2% increase. Personal income rose by an average of 0.4% a month in both 2022 and 2023, which is also the average of the two years before Covid. Many participants are more interested in the deflator, but with CPI and PPI in hand, economists have a fairly good sense of the PCE deflators  A 0.3% increase in the headline deflator in January will bring the year-over-year rate to 2.3%-2.4% (from 2.6% in December 2023), which would be the slowest pace since February 2021. The core deflator is seen rising by 0.4%, which would allow the year-over-year rate to slip to 2.8% from 2.9%. When the January CPI was reported on February 13, the implied yield of the December 2024 Fed funds futures contract soared by 23 bp and the Dollar Index jumped by about 0.75%. Because of the limited new information in deflator today, the market response should also be constrained.

Canada reports December and Q4 23 GDP today. Unlike the UK and Japan, which reported back-to-back quarterly contractions, the Canadian economy is likely to have returned to growth after a 1.1% annualized contraction in Q3 23. A 0.8%-0.9% expansion seems likely. The monthly GDP estimates contracted in June and July and were flat in August through October, before the economy grew by 0.2% in November. It is expected to have grown by another 0.2% in December. Ahead of the data, which we think is in line with the central bank's expectations, the swaps market is pricing in about a 70% chance of a cut in June. It has three cuts fully discounted this year and almost a 25% of a fourth cut. At the end of last week, there was around a 76% chance of June cut and only three quarter-point cuts were envisioned for this year. 

The US dollar reached a new high for the year yesterday, breaching the CAD1.3600 level in early North American turnover. It pulled back and found support near CAD1.3560. It finished near CAD1.3575, its highest settlement since mid-December. We had seen risk extending to CAD1.3600-CAD1.3625. A move above there could spur another big figure advance (CAD1.3700-CAD1.3730). A break below CAD1.3525, and ideally, CAD1.3500 would neutralize yesterday's constructive price action. So far today, the greenback is quiet but firmly trading between CAD1.3570 and CAD1.3590. The Mexican peso is the strongest emerging market currency this month, gaining about 0.85% against the dollar. That puts it in third place for the year behind the Indian rupee, the only emerging market currency to have edged higher against the greenback (~0.35%) and Hong Kong dollar (~-0.2%). The peso has off by about 0.60% this year. Still, the dollar continues to fray the downtrend line that we have been tracking off the January 23 and February 5 highs but has not settled above it. We have it coming in near MXN17.09 today. 



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Comments on February Employment Report

The headline jobs number in the February employment report was above expectations; however, December and January payrolls were revised down by 167,000 combined.   The participation rate was unchanged, the employment population ratio decreased, and the …



The headline jobs number in the February employment report was above expectations; however, December and January payrolls were revised down by 167,000 combined.   The participation rate was unchanged, the employment population ratio decreased, and the unemployment rate was increased to 3.9%.

Leisure and hospitality gained 58 thousand jobs in February.  At the beginning of the pandemic, in March and April of 2020, leisure and hospitality lost 8.2 million jobs, and are now down 17 thousand jobs since February 2020.  So, leisure and hospitality has now essentially added back all of the jobs lost in March and April 2020. 

Construction employment increased 23 thousand and is now 547 thousand above the pre-pandemic level. 

Manufacturing employment decreased 4 thousand jobs and is now 184 thousand above the pre-pandemic level.

Prime (25 to 54 Years Old) Participation

Since the overall participation rate is impacted by both cyclical (recession) and demographic (aging population, younger people staying in school) reasons, here is the employment-population ratio for the key working age group: 25 to 54 years old.

The 25 to 54 years old participation rate increased in February to 83.5% from 83.3% in January, and the 25 to 54 employment population ratio increased to 80.7% from 80.6% the previous month.

Both are above pre-pandemic levels.

Average Hourly Wages

WagesThe graph shows the nominal year-over-year change in "Average Hourly Earnings" for all private employees from the Current Employment Statistics (CES).  

There was a huge increase at the beginning of the pandemic as lower paid employees were let go, and then the pandemic related spike reversed a year later.

Wage growth has trended down after peaking at 5.9% YoY in March 2022 and was at 4.3% YoY in February.   

Part Time for Economic Reasons

Part Time WorkersFrom the BLS report:
"The number of people employed part time for economic reasons, at 4.4 million, changed little in February. These individuals, who would have preferred full-time employment, were working part time because their hours had been reduced or they were unable to find full-time jobs."
The number of persons working part time for economic reasons decreased in February to 4.36 million from 4.42 million in February. This is slightly above pre-pandemic levels.

These workers are included in the alternate measure of labor underutilization (U-6) that increased to 7.3% from 7.2% in the previous month. This is down from the record high in April 2020 of 23.0% and up from the lowest level on record (seasonally adjusted) in December 2022 (6.5%). (This series started in 1994). This measure is above the 7.0% level in February 2020 (pre-pandemic).

Unemployed over 26 Weeks

Unemployed Over 26 WeeksThis graph shows the number of workers unemployed for 27 weeks or more.

According to the BLS, there are 1.203 million workers who have been unemployed for more than 26 weeks and still want a job, down from 1.277 million the previous month.

This is down from post-pandemic high of 4.174 million, and up from the recent low of 1.050 million.

This is close to pre-pandemic levels.

Job Streak

Through February 2024, the employment report indicated positive job growth for 38 consecutive months, putting the current streak in 5th place of the longest job streaks in US history (since 1939).

Headline Jobs, Top 10 Streaks
Year EndedStreak, Months
6 tie194333
6 tie198633
6 tie200033
1Currrent Streak


The headline monthly jobs number was above consensus expectations; however, December and January payrolls were revised down by 167,000 combined.  The participation rate was unchanged, the employment population ratio decreased, and the unemployment rate was increased to 3.9%.  Another solid report.

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Immune cells can adapt to invading pathogens, deciding whether to fight now or prepare for the next battle

When faced with a threat, T cells have the decision-making flexibility to both clear out the pathogen now and ready themselves for a future encounter.

Understanding the flexibility of T cell memory can lead to improved vaccines and immunotherapies. Juan Gaertner/Science Photo Library via Getty Images

How does your immune system decide between fighting invading pathogens now or preparing to fight them in the future? Turns out, it can change its mind.

Every person has 10 million to 100 million unique T cells that have a critical job in the immune system: patrolling the body for invading pathogens or cancerous cells to eliminate. Each of these T cells has a unique receptor that allows it to recognize foreign proteins on the surface of infected or cancerous cells. When the right T cell encounters the right protein, it rapidly forms many copies of itself to destroy the offending pathogen.

Diagram depicting a helper T cell differentiating into either a memory T cell or an effector T cell after exposure to an antigen
T cells can differentiate into different subtypes of cells after coming into contact with an antigen. Anatomy & Physiology/SBCCOE, CC BY-NC-SA

Importantly, this process of proliferation gives rise to both short-lived effector T cells that shut down the immediate pathogen attack and long-lived memory T cells that provide protection against future attacks. But how do T cells decide whether to form cells that kill pathogens now or protect against future infections?

We are a team of bioengineers studying how immune cells mature. In our recently published research, we found that having multiple pathways to decide whether to kill pathogens now or prepare for future invaders boosts the immune system’s ability to effectively respond to different types of challenges.

Fight or remember?

To understand when and how T cells decide to become effector cells that kill pathogens or memory cells that prepare for future infections, we took movies of T cells dividing in response to a stimulus mimicking an encounter with a pathogen.

Specifically, we tracked the activity of a gene called T cell factor 1, or TCF1. This gene is essential for the longevity of memory cells. We found that stochastic, or probabilistic, silencing of the TCF1 gene when cells confront invading pathogens and inflammation drives an early decision between whether T cells become effector or memory cells. Exposure to higher levels of pathogens or inflammation increases the probability of forming effector cells.

Surprisingly, though, we found that some effector cells that had turned off TCF1 early on were able to turn it back on after clearing the pathogen, later becoming memory cells.

Through mathematical modeling, we determined that this flexibility in decision making among memory T cells is critical to generating the right number of cells that respond immediately and cells that prepare for the future, appropriate to the severity of the infection.

Understanding immune memory

The proper formation of persistent, long-lived T cell memory is critical to a person’s ability to fend off diseases ranging from the common cold to COVID-19 to cancer.

From a social and cognitive science perspective, flexibility allows people to adapt and respond optimally to uncertain and dynamic environments. Similarly, for immune cells responding to a pathogen, flexibility in decision making around whether to become memory cells may enable greater responsiveness to an evolving immune challenge.

Memory cells can be subclassified into different types with distinct features and roles in protective immunity. It’s possible that the pathway where memory cells diverge from effector cells early on and the pathway where memory cells form from effector cells later on give rise to particular subtypes of memory cells.

Our study focuses on T cell memory in the context of acute infections the immune system can successfully clear in days, such as cold, the flu or food poisoning. In contrast, chronic conditions such as HIV and cancer require persistent immune responses; long-lived, memory-like cells are critical for this persistence. Our team is investigating whether flexible memory decision making also applies to chronic conditions and whether we can leverage that flexibility to improve cancer immunotherapy.

Resolving uncertainty surrounding how and when memory cells form could help improve vaccine design and therapies that boost the immune system’s ability to provide long-term protection against diverse infectious diseases.

Kathleen Abadie was funded by a NSF (National Science Foundation) Graduate Research Fellowships. She performed this research in affiliation with the University of Washington Department of Bioengineering.

Elisa Clark performed her research in affiliation with the University of Washington (UW) Department of Bioengineering and was funded by a National Science Foundation Graduate Research Fellowship (NSF-GRFP) and by a predoctoral fellowship through the UW Institute for Stem Cell and Regenerative Medicine (ISCRM).

Hao Yuan Kueh receives funding from the National Institutes of Health.

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Stock indexes are breaking records and crossing milestones – making many investors feel wealthier

The S&P 500 topped 5,000 on Feb. 9, 2024, for the first time. The Dow Jones Industrial Average will probably hit a new big round number soon t…




Major stock indexes were hitting or nearing records in February 2024, as they were in early 2020 when this TV chyron appeared. AP Photo/Richard Drew

The S&P 500 stock index topped 5,000 for the first time on Feb. 9, 2024, exciting some investors and garnering a flurry of media coverage. The Conversation asked Alexander Kurov, a financial markets scholar, to explain what stock indexes are and to say whether this kind of milestone is a big deal or not.

What are stock indexes?

Stock indexes measure the performance of a group of stocks. When prices rise or fall overall for the shares of those companies, so do stock indexes. The number of stocks in those baskets varies, as does the system for how this mix of shares gets updated.

The Dow Jones Industrial Average, also known as the Dow, includes shares in the 30 U.S. companies with the largest market capitalization – meaning the total value of all the stock belonging to shareholders. That list currently spans companies from Apple to Walt Disney Co.

The S&P 500 tracks shares in 500 of the largest U.S. publicly traded companies.

The Nasdaq composite tracks performance of more than 2,500 stocks listed on the Nasdaq stock exchange.

The DJIA, launched on May 26, 1896, is the oldest of these three popular indexes, and it was one of the first established.

Two enterprising journalists, Charles H. Dow and Edward Jones, had created a different index tied to the railroad industry a dozen years earlier. Most of the 12 stocks the DJIA originally included wouldn’t ring many bells today, such as Chicago Gas and National Lead. But one company that only got booted in 2018 had stayed on the list for 120 years: General Electric.

The S&P 500 index was introduced in 1957 because many investors wanted an option that was more representative of the overall U.S. stock market. The Nasdaq composite was launched in 1971.

You can buy shares in an index fund that mirrors a particular index. This approach can diversify your investments and make them less prone to big losses.

Index funds, which have only existed since Vanguard Group founder John Bogle launched the first one in 1976, now hold trillions of dollars .

Why are there so many?

There are hundreds of stock indexes in the world, but only about 50 major ones.

Most of them, including the Nasdaq composite and the S&P 500, are value-weighted. That means stocks with larger market values account for a larger share of the index’s performance.

In addition to these broad-based indexes, there are many less prominent ones. Many of those emphasize a niche by tracking stocks of companies in specific industries like energy or finance.

Do these milestones matter?

Stock prices move constantly in response to corporate, economic and political news, as well as changes in investor psychology. Because company profits will typically grow gradually over time, the market usually fluctuates in the short term, while increasing in value over the long term.

The DJIA first reached 1,000 in November 1972, and it crossed the 10,000 mark on March 29, 1999. On Jan. 22, 2024, it surpassed 38,000 for the first time. Investors and the media will treat the new record set when it gets to another round number – 40,000 – as a milestone.

The S&P 500 index had never hit 5,000 before. But it had already been breaking records for several weeks.

Because there’s a lot of randomness in financial markets, the significance of round-number milestones is mostly psychological. There is no evidence they portend any further gains.

For example, the Nasdaq composite first hit 5,000 on March 10, 2000, at the end of the dot-com bubble.

The index then plunged by almost 80% by October 2002. It took 15 years – until March 3, 2015 – for it return to 5,000.

By mid-February 2024, the Nasdaq composite was nearing its prior record high of 16,057 set on Nov. 19, 2021.

Index milestones matter to the extent they pique investors’ attention and boost market sentiment.

Investors afflicted with a fear of missing out may then invest more in stocks, pushing stock prices to new highs. Chasing after stock trends may destabilize markets by moving prices away from their underlying values.

When a stock index passes a new milestone, investors become more aware of their growing portfolios. Feeling richer can lead them to spend more.

This is called the wealth effect. Many economists believe that the consumption boost that arises in response to a buoyant stock market can make the economy stronger.

Is there a best stock index to follow?

Not really. They all measure somewhat different things and have their own quirks.

For example, the S&P 500 tracks many different industries. However, because it is value-weighted, it’s heavily influenced by only seven stocks with very large market values.

Known as the “Magnificent Seven,” shares in Amazon, Apple, Alphabet, Meta, Microsoft, Nvidia and Tesla now account for over one-fourth of the S&P 500’s value. Nearly all are in the tech sector, and they played a big role in pushing the S&P across the 5,000 mark.

This makes the index more concentrated on a single sector than it appears.

But if you check out several stock indexes rather than just one, you’ll get a good sense of how the market is doing. If they’re all rising quickly or breaking records, that’s a clear sign that the market as a whole is gaining.

Sometimes the smartest thing is to not pay too much attention to any of them.

For example, after hitting record highs on Feb. 19, 2020, the S&P 500 plunged by 34% in just 23 trading days due to concerns about what COVID-19 would do to the economy. But the market rebounded, with stock indexes hitting new milestones and notching new highs by the end of that year.

Panicking in response to short-term market swings would have made investors more likely to sell off their investments in too big a hurry – a move they might have later regretted. This is why I believe advice from the immensely successful investor and fan of stock index funds Warren Buffett is worth heeding.

Buffett, whose stock-selecting prowess has made him one of the world’s 10 richest people, likes to say “Don’t watch the market closely.”

If you’re reading this because stock prices are falling and you’re wondering if you should be worried about that, consider something else Buffett has said: “The light can at any time go from green to red without pausing at yellow.”

And the opposite is true as well.

Alexander Kurov does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.

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