Good Wednesday AM,
US Data was weaker today but it didn’t matter.
Higher inflation and growth in both China and the EU has done damage, bonds have capitulated, finally caved and the price has now fallen all the way down to the next support level. We do not know if this will hold yet because it is not a well-tested level. For the reason I would play defense. We also do not know if the ten year will hold below 4%, very few experts believed we would sell off to the point that we have. Four percent is a major psychological level and if it breaks, we will absolutely run up and test 4.11%
And possibly some bluer skies on the horizon. The WSJ shared that;
Demand for U.S. workers shows signs of slowing, a long-anticipated development that is showing up in private-sector job postings even while official government reports indicate the labor market keeps running hot. ZipRecruiter Inc. and Recruit Holdings Co., two large online recruiting companies, say their data show the number of job postings is declining more than Labor Department reports of job openings. Investors recently hammered shares of those companies after disappointing earnings reports.
Robust government data on job openings and hiring are among the reasons Federal Reserve officials believe the U.S. economy is overheated, fueling high inflation. Fed officials are raising interest rates in an attempt to slow growth and reduce price pressures. If government reports move in line with the recruitment business, Fed officials could feel less pressure to move aggressively. The Labor Department next week will report job-opening figures for January and payrolls for February. It tallied the number of available jobs in December at 11 million, 57% above levels in February 2020, right before Covid-19 hit the economy. The number ticked up in December after drifting lower in earlier months. Hiring surged in January, the Labor Department also reported, as restaurants, hospitals, nursing homes and child-care centers staffed up, more than offsetting cuts announced by employers such as Amazon.com Inc. and Microsoft Corp.
The data from Recruit Holdings, the parent company of U.S. job-listing site Indeed, and ZipRecruiter, tell a somewhat different story. ZipRecruiter said its job postings in December were 26% above pre-Covid levels and fell further in January. Indeed, also showed a greater drop than the government figures, though not as stark as ZipRecruiter found. Indeed’s data show that companies are cutting back in particular on sponsored job postings, the kind they pay for, meaning they have been less willing to invest heavily to fill open positions. Other private data also point to a decline in available jobs. The National Federation of Independent Business, which represents small businesses, and LinkUp, a research firm that tracks job listings that companies place on their own websites, also show a sharper drop in postings than recent government reports on openings. “Clearly, we’re in a macroeconomic slowdown, and online recruiting has effectively cooled across the country,” Ian Siegel, chief executive of ZipRecruiter, said in a conference call last week. ZipRecruiter’s weak quarterly revenue numbers sent its share price down more than 20% in a day. “We are seeing a surge in job seekers,” Mr. Siegel said. “When there are less jobs, it’s going to take these job seekers longer to find work and that is, in fact, what we are seeing.” The firm told investors it is preparing for a softer hiring environment for the rest of the year.
The Fed is trying to slow the labor market. It has been raising short-term interest rates to cool household and business spending, which Fed officials hope will reduce labor demand and inflation. The Fed hopes to slow the economy and inflation just enough, without also spurring outright firing of workers and sharply higher unemployment. “We are seeing a decline in employers’ willingness to spend to hire in many industries despite the labor shortage as they become increasingly cautious due to a potential recession in the U.S.,” Hisayuki Idekoba, chief executive of Recruit Holdings, said in a February call.
And a solid piece from Bloomberg on recession flags. The punch line is… no one knows…
For a while, the market was betting on imminent Fed rate cuts, possibly starting as soon as later this year. The expectation was either that there was going to be some kind of recession that caused cuts, or that maybe they would make sense in the context of a soft landing.
Anyway, it looks like that’s gone for now. The 3M-2Y portion of the yield curve has almost totally un-inverted. This is in keeping with our new “higher for longer” and “no landing” times.
But what’s interesting is that while one curve un-inverts, another curve’s inversion gets deeper and deeper.
The 2Y-10Y spread is now at -90.4. That’s a level we haven’t seen since October 1981, more than 40 years ago. Of course, this is the part of the curve that for years people have generally talked about as having recession-predictive power. Now setting aside whether that’s true, or why it would be true, it’s arguably still flashing a deep red, perhaps signaling that ultimately the tightening the Fed will have to do to kill inflation will induce that recession after all.