The Labor Department’s JOLTS (Job Openings and Labor Turnover Survey) report this morning showed that job vacancies at U.S. employers dropped in February to the lowest since May 2021. The number of available positions decreased to 9.9 million from a downwardly revised 10.6 million a month earlier. That’s still indicative of a tight labor market,
Sunday’s surprise Saudi supply cut will send oil prices higher and to take a bite (your guess is as good as mine) out of the financial markets. On Sunday, April 2 (thank goodness this wasn’t announced yesterday on April Fool’s Day) OPEC+ announced a surprise oil production cut of more than 1 million barrels a day. The organization had not so long ago promised assurances that it would hold supply steady. Supply was already looking tight for the second half of the year and this round of cuts–led by Saudi Arabia’s, 500,000 barrel-a-day reduction–will send oil prices higher.
Today the Federal Reserve mounted a full-court press (Hey, it is March Madness time, right?) on the need for at least one more interest rate increase before any pause. And financial markets were listening.
Look for another inflation report this week. This time–on March 31–it’s the Federal Reserve’s favorite inflation model, the Personal Consumption Expenditure (PCE) index. And, there’s potential trouble in this report–if projections from the Cleveland Federal Reserve Bank’s Inflation NowCast are accurate.
Not a whole lot of news out of today’s breathlessly awaited meeting of the Federal Reserve’s Open Market Committee. The committee raised its short-term benchmark rate by 25 basis points to a range of 4.75% to 5%. That move had about 80% odds in its favor going into the meeting. The Dot Plot projections kept the interest rate forecast at 5.1% for the end of 2023. That was unchanged from the December Dot Pot projections.
This week’s Trend of the Week: There is no Trend. When I was filming this video on Tuesday the 14th, the S&P was up almost 2%, the DOW was up almost 1.5%, the NASDAQ was up 2.23% and the VIX, which had been climbing higher with the Silicon Valley Bank collapse, was down almost 15%. Since filming, the markets dipped sharply with the threat of Credit Suisse going under, and have trended slightly upward since. If you’re going to trade in this market, you have to do one of two things. One thing is to be very fast, and trade on the bounces as they show up. The other tactic is planning ahead. Long-term in this market is about a week. A week prior to filming (3/6) I bought Call Options on the VIX (the volatility index) and I sold them on March 13 with a 108% return. On March 14, however, those VIX Call options were down 27%. Talk about volatility! The trend is, there is no trend. Subscribe to my JubakPicks.com to get timely posts on how to keep up with the chaos. For more options and other volatility plays, subscribe to JubakAM.com.
Today at 2:30 p.m. New York time the yield on a 10-year Treasury was up 10 basis points to 3.55%. Yesterday the yield had dropped to 3.50%. The yield on the 2-year Treasury, very sensitive to sentiment on Fed interest rate policy, crossed back above 4% to 4.15%. Yesterday the yield had dipped to 3.99%. Another day like this and we’ll see some short-term yields, 6-month perhaps–above 5% again.
The European Central Bank raised its benchmark short-term interest rate by another 50 basis points today. The bank said that the European banking system has strong capital and liquidity positions in spite of problems at Credit Suisse that led that bank to borrow $54 billion from the ECB yesterday. Fighting inflation remains the bank’s top priority.
Shares of Credit Suisse (CS) fell this morning–if a 31% drop at the worst moment can be called “falling”–after the bank’s biggest shareholder said it would NOT put more money into the challenged bank. As of noon New York time, shares of Credit Suisse were down 24.1%. The bank’s bonds fell to levels that signal deep financial distress, with securities due in 2026 dropping 17.75 cents to 70 cents on the dollar in New York. That puts their yield at about 20 percentage points above U.S. Treasuries.
Remember the financial market consensus that the Federal Reserve would raise interest rates by 50 basis points at its March 22 meeting and that we should expect to see peak short-term rates from the Fed above 5.5% and maybe even as high as 6%. Not any more. The collapse of Silicon Valley Bank and the exposure of exactly how fragile the banking system is has led to a return of the earlier (as in a month or two ago) consensus.
Tomorrow’s CPI inflation report for February will show whether the Federal Reserve faces a very difficult task in bringing down inflation without crashing the economy (and/or the banking system) or whether the job is simply impossible. Right now economists are pointing toward impossible. The annual inflation rate is likely to have come down in February from January but the month-to-month trend is likely to be flat. Which means that inflation has stopped declining with the annual rate well above the Fed’s 2% target rate.
The collapse of Silicon Valley Bank means both a whole lot for your portfolio and very little. It depends. I’ll explain.
