Top Things to Watch this Week

Top Things to Watch this Week

The Fed & Nonfarm Payrolls

"Man is the creature of the era he lives in; very few can raise themselves above the ideas of the time." - Voltaire

Chart Booklet

Access this week's chart booklet leading with monetary policy and jobs data. We also cover in-depth corporate trends as we share insights on Alphabet, Apple, and Amazon after their respective earnings reports. 

 

Triple Play Podcast

Don't miss the fourth episode of our Triple Play Podcast! Bill Baruch and Jannis Meindl talk about the latest macro trends and share 3 actionable stock ideas.

Fed & Nonfarm Payrolls

Fed Monetary Policy

On Wednesday, the Fed unsurprisingly hiked interest rates by another 25bps to a target rate of 450 - 475bps. After more than 400bps of hiking from March of last year, the FOMC's statement acknowledged that "inflation has eased" but "remains elevated". Furthermore, the statement reads that "the committee anticipated that ongoing increases" will be needed to return to 2% average inflation, which on its face is contrary to interest rate cuts priced in by Fed Funds futures later in the year. Balancing the hawkish tone of the first half of the statement, the committee will account for "the cumulative tightening of monetary policy", cognizant of "the lags with which monetary policy affects economic activity and inflation". Net-net, no news was good news and the Nasdaq turned positive ~10 minutes after the release. 

More importantly, though, markets eagerly awaited any pushback on loosening financial conditions by Jay Powell during the press conference. Starting off on a more balanced note, emphasizing that we will need "substantially" more evidence to support the idea that inflation is indeed headed for 2%, Jay Powell was rather dismissive of recent easing of financial conditions. Instead, he stated that conditions are affected by many factors, including monetary policy. Overall, though, the significant tightening of financial conditions as reflected by the housing market bodes positively for achieving the goals of the Fed. 

Taking a dismissive approach towards loosening, the Fed Chair was further encouraged by the robustness of the labor market despite the disinflationary trends we've seen, giving further credence to a soft landing. Most importantly, though, Jay Powell ignited a run in risky asset when he gave a clear signal that the committee has more faith in a sustained downward trend of inflation: "We can now say, for the first time, that the disinflationary process has started."

With two more 25bps hikes anticipated by markets, one in March and one in May, rate cuts are priced as we get into H2 of 2023. While Jay Powell mentioned that he doesn't see the prospects for rate cuts, he retains an open mind if the data supports those cuts. As a result, this is all about trends in activity and therefore inflation.

 

Don't miss Episode 5 of our Triple Play Podcast -- Bill Baruch and Jannis Meindl share their thoughts on recent inflation data.

 

Nonfarm Payrolls

Supportive of the idea that the job market will remain extraordinarily tight, nonfarm payrolls showed that 517k jobs were added in January. Despite questions around seasonal adjustments and population factors leading to a bias in the number, those same adjustments would have led to more job gains in prior months when the survey didn't show as much tightness. 

Unemployment at 3.4% is the lowest it's been since 1969. Coupled with JOLTs job openings at 11m+ and initial jobless claims sub-190k suggest that laid off workers have plenty of opportunities to get re-hired.

Most job gains were in leisure and hospitality at 128k jobs added with professional & business services, health care, and government ranking high as well. As the only sector of the economy, information printed a negative number with financial activities also ranking low. 

Given that ADP came in close to ~100k job additions, one has to wonder what the natural growth rate of labor is, however.

 

At 0.3% M/M, wage gains are certainly more muted than people might have feared given how robust the labor market is. 3.66% annualized with little wage inflation in areas such as leisure & hospitality (0.05% M/M), services inflation prospects don't look too concerning. On the higher end of the distribution, wholesale trade wage gains came in at 1.03% with utilities and other services at 0.85% and 0.65%, respectively. 

Using January's month-to-month data and extrapolating wage gains, total private wages could fall to sub 4% by September with areas such as information, leisure & hospitality, and durable goods well below the 4% mark. 

Although challenger job cuts came in at the highest level since September 2020 and the highest January since 2009, workers get re-hired while the bargaining power on the wage side appears rather balanced still.

 

Be sure to access our weekly chart-pack with everything from GDP to corporate highlights.

Chart-Pack Macro Slides

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Stay tuned for Episode 5 of Triple Play!


Until next time, good luck & good trading.

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Economic Calendar

U.S.

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Data Release Times (C.T.)


China

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Data Release Times (C.T.)


Eurozone

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Data Release Times (C.T.)


More Of The Upcoming Economic Data Points Can Be Found Here.


Food for Thought

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Blue Line Capital

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