Good Tuesday AM on this first trading day of 2023,
Happy New Year.
I hope you had a very happy and safe New Year celebration.
Bonds are showing a bit of strength this morning. Mortgage bonds have broken below a several-day downward trendline. This is good, but it only matters if we close above the referenced trendline. The ten-year bond has shown a nice bounce off the highs of 3.88 to now be at 3.78%. This is a good start, but where we close is what matters. This is a light news week and likely a quiet week relative to most weeks. This will get interesting toward the end of the week as the market prepares for the Payroll numbers on Friday.
Lots of slides to share but will slide (😊) them in over time. The one for today is further illustration on how this Fed is raising rates faster than any other Fed has in the past. Next, I will share recent info on the labor market starting to shift.
Tough to imagine a soft landing but I am hoping.
There was an interesting piece from Bloomberg today. It is a funny to see how diverse the projections are. I guess that’s the way they should be on January 3rd .
Hello and welcome to the new year. So the bad news is, nobody has any idea what’s going to happen this year. The good news is, the year will start with plenty of data and info to pore through and extrapolate wildly from. Today we get the US Manufacturing PMI and Construction Spending. Tomorrow it’s ISM and JOLTS. Wednesday it’s Jobless Claims, and then of course Friday is the Non-Farm Payrolls report, where economists expect 200K new jobs, and for the unemployment rate to hold steady at 3.7%. The hourly wage number is expected to grow by 0.4% after last month’s hot 0.6% reading.
I think you could make an argument that there are risks in both directions right now. Yeah, that kind of sounds like a cliche. But at this point in time, there are intelligent people making arguments that this will be a year of stubbornly high inflation, and more rate hikes than expected. And there are smart people warning about recession and a substantial rise in the unemployment rate. In a note written before Christmas, Tim Duy, the Chief US Economist at SGH Macro wrote: “The labor market resilience has surprised the Fed, and it believes it needs to keep tightening until it sees clear evidence that the labor market is in retreat. Only then can the Fed be confident it will bring inflation under control over the longer run.” If the story of the 2023 is that the Fed won’t feel confident on the inflation front until we see a “labor market in retreat” then that’s a good reason to think labor market weakness is only a matter of time.
Please remain safe and healthy.