SVET Markets Weekly Update (October 10, 2022)
As the previous week macro-data suggested we have had some notable negative shifts on the labor market front registering on govs radars, at last.
The sudden (for mainstream analysts) rise in jobless claims (by 29000 to 219000) indicates that corps, faced by shrinking markets, increased energy costs as well as FED rising the banks rate, are revisiting their growth objectives and reducing their hiring programs as a result.
Expectedly, some traders interpreted that as the strong buy signal leading to NASDAQ jumping from 10800 to 11200 on Wednesday opening session (with BTC and others following suit). Nonetheless, after Powell in his latest ‘read-my-lips’ statement doubled-down on the FED anti-markets stance, I am not sure that JOLTs reaching its four-months high or even the drastic increase in the jobless rate will do a healing magic on the FED chairman brain.
Specially taking into account the seasonality factor, which might provide some temporarily reliefs. For example, on Friday, October 7, the new wave of negativity hit the market after Bureau of Labor Statistics (BLS) reported a sudden (most analysts expectations put it on 3.7 percent) reduction of the unemployment rate, which fell to 3.5 percent in Sept (compare to 3.7 percent in August).
This spike can be explained by job gains which occurred in leisure, hospitality and in health care industries during the summer. It is accompanied by a continuing reduction in numbers of employed persons working remotely. According to BLS only 5.2 percent ‘teleworked’ in Sept (compare to 6.5 in the prior month and to 35.4 in May 2020).
However, without accounting for those seasonal mollifications, we can expect that employment situation will be worsening (which is corroborated by the rising job claims). Let us hope that, eventually, the economic reality will sink in and FED will come to its senses. Before it happens the bad news for the economy will be the good news for stock / crypto market and vice versa.
This week we will be watching the following major macro indicators updates:
Wednesday: PPI (Producer Price Index) for September;
Thursday: Yearly Inflation Rate (Sept 2021 to Sept 2021);
Friday: Retail Sales for Sept.
PPI is one of those metrics which many analysts refer to when identifying main causes of prices increase passed by manufacturers to the consumer sector. Obviously, it is no-brainer in the recent economic environment :) — energy costs rise is the main driver of the inflation.
However, we have seen a sharp decrease of oil prices in July after alternative supplies had been opened to the energy market participants. PPI fell 0.1% in August of 2022, following a 0.4 percent drop in July. The biggest drop was in the gasoline cost — 12.7 percent.
Those sudden, unsettling for the economy prices fluctuations are caused by FED own policies. It can be traced back to the end of WW2 by comparing two graphs — inflation and rate ones.
It was especially pronounced in 70th when there were four FED chairmen consecutively destroying the US economy: prior to January 1970 — William McChesney Martin (majored in the Latin language and called “the happy Puritan”); before Jan 1978 — Arthur Frank Burns (a professor at Columbia University converted into a career bureaucrat); up to March 1978 — George William Miller (a corps executive) and — since 1978 to August 1987 — infamous Paul Adolph Volcker Jr., who majored in political economy before joining the staff of the Federal Reserve Bank of New York where he made his bureaucratic carer up to the top.
First, Martin hiked the rate up to 9 percent trying to curb a slight inflationary rise (more than 6 percent on the top) caused by the war-time US budget deficit and by the end of Vietnam war economic downturn. He was succeeded by Burns, who back-and-forth FED rate policies three times during the next eight years. As a result the rate oscillated between 4 and 13 percent while inflation, simultaneously — between 4 and 12.
After that Volcker made it to the new level of absurdity by rising the rate to 20 percent at the start of 1980th causing two recessions in a row during the next three years. By that time, the overall rise in US economic productivity, promulgated by the major technological advancements of the computer age and added by massive tax lifts, had already jump-started the economic growth, which might have happened much earlier if not for FED monkeying with rates.
That continues up to our days when the annual inflation rate easing for a second straight month (to 8.3% in August) has a zero effect on Powell absurd ‘rocket-speed-rise’ policy.
Retail sales in the US went up 0.3% in August. Falling gasoline prices allowed consumers to buy more cars (+2.8 percent), to eat more food (+1.1) and to build more staff at their homes (+1.1), not to mention to exercise, to hobby, and to read (+0.5 overall). Analytics expectations for September are that sales will slow down a bit (rising to 0.2 percent) after the end of vocational period brings consumers back from restaurants to sheep home-meals.