July 6, 2023 | Daily JAM, Morning Briefing |
Earlier this week economists were projecting the official government jobs report due on Friday, that is tomorrow, would show that the U.S. economy added just 200,000 jobs in June. This morning, however, the ADP Research Institute’s survey of private employers showed the economy added 497,000 jobs in June. That’s more than twice the 220,000 gain that economists had projected for this report. And way above the 267,000 jobs reported by this survey in May.
June 29, 2023 | Daily JAM, Morning Briefing, Short Term |
This morning all the way in New York I could hear the gnashing of teeth from Jerome Powell’s office at the Federal Reserve. “What do we have to do to slow consumer spending in the Untied States?” he cried after this morning’s economic data. Today the Commerce Department sharply raised its judgement on first quarter GDP growth. The last revision to the data showed the U.S. economy growing at a 2% annual rate from January through March. That was a huge step up from the 1.3% growth repoRrted in the previous GDP estimate.
June 28, 2023 | Daily JAM, Short Term |
Investors and traders have been riding a Goldilocks market that has rested on a belief that all news is good news. There are signs that belief is facing challenges that might, just might, lead to a replacement of Goldilocks with some other narrative. Right now, the golden child is still resting peacefully at the Three Bears’ house with a stomach full of “just right” porridge, but sentiment in the last week has at least been willing to countenance the possibility that some bad news is bad news. And, I can see a lurking suspicion in the market that may be in the weeks to come all news if bad news.
June 14, 2023 | Daily JAM, Morning Briefing |
As expected, the Federal Reserve’s Open Market Committee held the central bank’s benchmark interest rate steady today at 5.0% to 5.25%. But the Fed in its meeting press release and Fed chair Jerome Powell’s press conference stressed that its inflation fight isn’t over. That the market could see another interest rate increase at the July 26 meeting. And that the market should not expect a pivot to interest rate cuts anytime soon.
June 10, 2023 | Daily JAM |
This week brings potentially market-moving doses of news on inflation and interest rates. First up, inflation. On Tuesday, June 13, the market will get the report on CPI (Consumer Price Index) inflation for May. Economists project that, because of falling gasoline prices in the month, all-items headline CPI will show just a 0.2% increase in month-to-month inflation in May and just a 4.1% year-over-year inflation rate. That would be the lowest annual inflation rate since March 2021. The core rate, however, is expected to climb at an annual 5.3%. And then on Wednesday, the Fed meets on interest rates.
June 8, 2023 | Daily JAM, Morning Briefing |
A flood of Treasury bill, note, and bond sales will drive yields over the next few months as the U.S. Treasury rebuilds a cash account drawn down to the splinters at the bottom of the barrel during the debt ceiling crisis. On Tuesday, the U.S. Treasury clarified the schedule for auctions designed to refill those coffers. The timing, in my opinion, points to a July peak in Treasury yields. (And don’t forget that the Federal Reserve meets on July 26. Today, June 8, the financial markets are saying that there’s a 75.8% chance of either 25 or 50 basis points of interest rate increases at the conclusion of that meeting (some combination of rate increases at the June 14 and July 26 meetings) with odds at 49.9% of just 25 basis points of increased to the Fed’s benchmark rate, now at 5.00% to 5.25%, as a result of the two meetings. I’ve suggested buying the 2-year Treasury on that July peak.
June 5, 2023 | Daily JAM, Videos |
Today’s Quick Pick is 2 Year Treasuries. Ten-year Treasuries with a 5% yield may still be a long way out, but Two-year Treasuries now have a yield of 4.5%. Rates may continue to go up in the short-term and the Fed is likely going to raise interest rates again in June or July, but this is a good place to start a position in these Treasuries. You can, of course, get a CD with a 5% yield, but the CD won’t earn you capital appreciation. If rates go down when the Fed stops raising rates, treasury yields may go down, but the bond may go up. We’ll likely see a peak in rates in the third quarter, so at the moment, I think Two-year Treasuries are a good buy.
June 1, 2023 | Daily JAM, Morning Briefing |
What’s the difference between a “skip” and a “pause.”
That’s the question the Federal Reserve has posed to the financial markets today. Fed Governor and Vice-chair nominee Philip Jefferson said today that any decision to hold rates steady should not be viewed as the end of the tightening cycle. Coming just two days before the beginning of the Fed’s pre-meeting quiet period, Jefferson’s comments are being seen by the market as a preview of the Fed’s action at its June 14 meeting.
May 27, 2023 | Daily JAM |
You’re entitled to feel a bit (or more) of debt ceiling fatigue. For a change of pace, look to Friday, June 2, when the Bureau of Labor Statistics releases its jobs report for May. Economists project that the U.S. economy added fewer than 200,000 jobs in May. That would be a big dip from the average monthly gain of about 370,000 over the last year. Average hourly earnings are forecast to have increased by 0.3% in May from April.
May 22, 2023 | Daily JAM, Morning Briefing, Short Term |
Last week Federal Reserve chair Jerome Powell said that the Fed could hold off on another interest rate increase at its June 14 meeting. That comment wz one reason that the CME FedWath tool showed the odds of no increase at the meeting jumping to 82.6% on Friday, May 19. But today, Federal Reserve Bank of St. Louis President James Bullard and Neel Kashkari, head of the Minneapolis Fed said, essentially, that “could” doesn’t mean will. Bullard backed two more 2023 interest-rate increases and Kashkari said if the central bank pauses next month it should signal tightening isn’t over.
May 15, 2023 | Daily JAM, Mid Term, Videos |
This week’s Trend of the Week is Credit Squeeze. SLOOS (Senior Loan Officer Opinion Survey), a Fed survey, asks bank lending officers what they’re seeing in the credit market for commercial industrial loans. In the most recent survey, 46% of these officers report that their banks are making it harder to get loans. This is a textbook example of Hyman Minsky’s credit cycle. After a period of booming lending, the credit cycle returns to a period of tightening credit, often coinciding with eye-opening events like the Silicon Valley Bank failure, and a slowing down of the economy overall. The SLOOS report also showed a 56% drop in demand for commercial loans in the first quarter–an indicator that companies are aware that loans are harder to come by. Companies are having real trouble raising capital which is resulting in merger and/or acquisition deals for early-stage companies and employee layoffs as CEOs and CFOs attempt to hoard cash. The signs are that the Fed is taking notice of this contraction in the credit market and is starting to factor it into rate hike decisions. The Fed may decide it doesn’t need as many interest rate increases as it originally thought if the supply of credit is shrinking quiickly.
May 12, 2023 | Daily JAM, Mid Term, Morning Briefing |
It’s only a survey of consumer sentiment so it’s not very important to the financial markets, right? Wrong. The University of Michigan survey of consumer sentiment for May illustrates perfectly the trap that the Federal Reserve is caught in right now.
