Labor Markets, Bonds, Transportation Stocks, Fed, April Optimism, China Listing Rules

US labor markets are and have been strong. I don’t think anyone would question this conditional reality three months after 2022. On Friday, the Bureau of Labor Statistics released the agency’s employment-related survey results for March. According to the BLS, the US economy created 431K jobs in March. This number fell some 60,000 below expectations, but is by no means considered a weak number. Beyond that, the February estimate for nonfarm payroll expansion was revised from 678,000 to $750,000 (+72,000).

Furthermore, the official unemployment rate fell from 3.7% to 3.6%, while the “underemployment” rate, perhaps even more impressively, fell from 7.2% to 6.9% (seasonally adjusted). . The median hourly wage beat expectations with 5.6% year-over-year growth, while the still-strong median workweek of 34.6 hours fell short of consensus.

All in all, March showed no real signs of a slowdown in labor demand. This allows FOMC voting members to consider a more aggressive stance in early April than they might otherwise have taken. One month before the May 4 (next) policy statement, futures markets trading in Chicago have a 69% chance of a 50 basis point increase in the fed funds rate target at that moment. As for the June 15 meeting, those futures are currently trading at 78% of “at least” a further 50 basis point rise, with a 19% chance of a 75 basis point rise.

So what is so peculiar? Well, I couldn’t help but notice that as the Fed prepares to curb inflation and prevent the economy from “overheating” due to a hot labor market that as the week progressed… the inversion of the Treasury yield curve The US stock deepened, the Dow Transports fell out of bed, and even as seven of S&P’s 11 sector-select SPDR ETFs closed the week on the positive side, the four best-performing sectors over the past five days were made the four sectors considered to be more “defensive” in nature.

To put it bluntly, the financial markets are pricing in a much tougher economy ahead in the short to medium term than the one we face on our immediate front.

Market

As readers head into the week, the US 30-year bond pays about 10 basis points less than the US five-year note, while the US 10-year bond pays about 10 basis points lower. The US pays about 11 basis points less than the US 7-year bond, the US 5-year bond, 23 basis points less than the US 3-year bond, and about 5 basis points less than the US 5-year bond. USA to two years. That same 10-year US note is still paying about 104 basis points more than the 1-year Treasury bond and about 186 basis points more than the 3-month US Treasury bond. To me, this indicates that although the recession economy may be in our future (not a sure thing), that this sustained contraction in economic activity is likely (at this point, it could change) at least 18 months from now.

Equity markets, as mentioned above, sent mixed signals. While truckers such as JB Hunt (JBHT), Landstar (LSTR) and Old Dominion (ODFL) led transports lower, major weakness was also felt in delivery services such as FedEx (FDX) and United Parcel Service (UPS). ). such as rails and sea freighters. Put bluntly, even as the Nasdaq Composite and Nasdaq 100 posted weekly gains of 0.65% and 0.72%, respectively, and as the S&P 500 closed the week better than “business as usual”, investors aggressively sold shares of any company that moves transportation. It is usually not a good sign.

The Federal Reserve

This week, I am currently tracking nine public appearances to be made by Fed officials this week, apparently grouped together on both Tuesday and Thursday, and headed by Lael Brainard. Brainard, already a member of the Fed’s Board of Governors, has long kept low-key as she awaits Senate confirmation for the Fed Vice Chair job. She will, however, discuss inflation at a virtual event on Tuesday hosted by the Minneapolis Federal Reserve.

Also, the Federal Reserve Bank will release the minutes from the March policy meeting this Wednesday afternoon. I would hope that there could be at least some detail, if not really specifics, regarding how the Fed plans to reduce the balance sheet going forward. There is, at least from a market perspective, the possibility that a course of action could be discussed that would be aggressive enough to spark the high-speed keyword reading algorithms that control price discovery in 2022. Tread carefully on Wednesday afternoon.

As for the weekend that just passed, the Fed was away from home. President of the New York Fed. John Williams spoke on inflation Saturday from Princeton, New Jersey, mentioning that it is going through a “sequence of steps” and that he hopes “this process of downsizing the balance sheet can start as soon as the FOMC meeting in May.” “.

President of the San Francisco Federal Reserve. Mary Daly, a former pigeon, interviewed the Financial Times over the weekend and that article was published on Sunday. Daly called US labor markets “very strong” and “tight to an unsustainable level.” FT quotes Daly as saying, “If you want a job in the US, you can get one and you can probably get multiple jobs right now. If you’re an employer looking for workers, it’s hard to hire and retain them.” Adds Daly… “The case for 50 (basis point rate hike), barring any negative surprises between now and the next meeting, has grown. I’m more confident that taking these early adjustments would be appropriate.” .

But, it’s still April

Yes, it is, and April has just begun. They say “Sell in May and go” for a reason. That reason is because April tends to bring with it the season of optimism. Not only do we play baseball that counts in April, but April is often the best-performing month of the year for stocks. This is why so many portfolio managers, while beating around the bush preparing for the next economic weakness that is only exacerbated by the war in Eastern Europe and the pandemic-related shutdowns in China, refuse to get really “lightweight” stocks. ” for now.

Talk about seasonality. I thought about how far to take my investigation. I chose 2007 because that is the first year that trading on the NYSE floor switched to what was then called a “hybrid” model, but was actually the end of the open-cry, two-sided, centralized market model. I have no doubt that the price discovery before and after 2007 are different animals.

Starting in 2007 (15 years), the S&P 500 posted a positive April 93% of the time, easily better than the second best positive performance of 73%, which is a three-way tie (May, July, and December). Also, over the last 15 years, April has posted an average return of 3.06%, much better than the +2.19% in July, which is second best. Note here that while May is included in the above three-way tie for second place in frequency of ending the month positively in the last 15 years at 73%, May… during those years has recorded an average yield of only 0.16%. which is the eighth best.

In other news…

The China Securities Regulatory Commission confirmed, on its website, plans to review confidentiality rules regarding overseas listings. This could lead to US-listed Chinese corporations avoiding delisting if the rules meet US standards.

Evidence of the heinous atrocities committed by Russian troops in Ukraine is mounting further as the Ukrainian military retakes towns and villages formerly held by Russian forces to find civilians buried in mass graves and others unburied in the streets with hands tied and bullet holes in the head. Both French President Emmanuel Macron and British Prime Minister Boris Johnson accused Russia/Putin of war crimes, while Macron called for stronger sanctions against Russian energy products.

ok gang

Not much macro to look forward to this week. Hardly any profit. War in Eastern Europe. Covid surging in China and picking up here at home. Inverted yield curve. Stocks hopeful, but skating on thin ice with the S&P 500 once again trading this >< close to 20x prospective earnings. The Federal Reserve. I would tell you to fasten your chin straps, but you already know the drill. Clean socks and two water fountains. Get ready to move.

Economic Sciences (All Eastern Times)

10:00 – Factory orders (February): Expecting -0.5% m/m, Latest 1.4% m/m.

The Federal Reserve (All Eastern Times)

There are no scheduled public appearances.

Today’s Earnings Highlights (Consensus of EPS expectations)

Before the Open: (ATC) (.21)

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