Good Thursday AM,

Funny-ish piece from Dan Rawitch today. I typically say we are the dentists but mortician?

Bonds have officially ended their relief rally, and now we must wait and hope for some help from tomorrow’s Non-Farm Payroll numbers. Sadly, we are hoping that fewer Americans have found jobs this month. We are the morticians of the economy. When things get bad, bonds get happy. Of course, I do not want people out of work, but I want to see bonds rally. At this point, the technical aspect of the bounce appears to have ended, and we are likely to retest the lows (prices) unless we get some economic news to help us. Once again, I must advise you to play defense. Float only if you think the payroll numbers tomorrow will be bad!

On to today.

Unemployment claims came in higher than expected which should have helped bonds but, with the jobs report coming out tomorrow (which will have an outsized impact on the markets), for the moment everyone is playing defense.  Rates markets are starting to price Fed rate cuts next year justifying a Fed pivot in the concept of the interest rate required to maintain financial stability despite Federal Reserve officials insisting they have no plans reduce borrowing costs. 

I am including three snippets from the WSJ to round out the notion that the economy is slowing, in a recession, and that rates will moderate soon. I would add one additional tidbit that inflation readings may continue to be elevated for the next month as we are getting rid of the last low inflation reading of 2021 in the 12-month lookback. This is not only predictable but is expected, so don’t be shaken by that or fooled to think the economy is churning along because of the number.

The Fed, first criticized for raising interest rates too slowly, is now accused by some of lifting them too rapidly. The central bank, naturally, disagrees. But it is hard to know whether it is right because the Fed isn’t following any consistent formula. This has allowed Fed Chairman Jerome Powell to pivot toward raising interest rates at breakneck speed to combat high inflation. But it has also confused markets and heightened the risk the Fed ultimately lifts rates too much.

Markets Break When Interest Rates Rise Fast: Here Are the Cracks

Central banks are raising interest rates at the fastest pace in more than 40 years—and signs of stress are showing. Recent turmoil in British bond and currency markets is one. That disturbance has exposed potential risks lurking in pensions and government bond markets, which were relative oases of calm in past financial flare-ups. Major U.S. stock markets recorded their worst first nine months of a calendar year since 2002, before rallying this week. Treasury bonds, one of the world’s most widely held securities, have become harder to trade. There also are signs of strain in markets for corporate debt and concerns about emerging-market debt and energy products, Jon Hilsenrath, Sam Goldfarb and Chelsey Dulaney report.

World trade in goods is set to slow sharply next year, possibly easing high inflation but raising the risk of a global recession, a new forecast shows. Surging energy costs and rising interest rates are weakening household demand across the globe, a dynamic that could cause exports and imports to increase by just 1% in 2023, the World Trade Organization said Wednesday. That is down from a previous forecast of 3.4%. A slowdown in trade could help bring down price pressures by easing pressure on supply chains and reducing transportation costs. It also means there is an increased risk that the global economy will contract, Paul Hannon reports.

Please remain safe and stay healthy, make today great!