Macro Economy Weekly | Bitmidas
2023–09–04
The data cools down and the probability of raising interest rates within the year decreases
This week’s economic and labor data are cooling down, and the probability of raising interest rates within the year decreased, but prices rebounded moderately, the Eurozone inflation is stubborn, and the US and Europe will maintain high interest rates in general…
Important Data of the Week
U.S. JOLTs job vacancies recorded 8.827 million in July, lower than the revised previous value of 9.165m (pre-revised 9.582m) and the market forecast value of 946.5. It is a decrease for three consecutive months. Since December 2022, the data has shown a continuous downward trend.
ADP employment in the United States in August recorded 177k, lower than the previous value of 371k, and the market forecast value of 195k, a record for the smallest increase in three months, indicating that the labor market is less resilient and less active.
The number of initial jobless claims in the United States recorded 228k in the week ended August 26, lower than the previous value of 232k, and market forecasts of 235.
The number of layoffs of challenger companies in the United States in August recorded 75151, much higher than the previous value of 23697, the highest since May。
Data from the U.S. Labor Department on Friday showed that U.S. non-farm payrolls recorded a seasonally adjusted 187k in August, higher than expected revisions. The previous value was 157k, and the market forecast value was 170k.
The total number of new jobs added in June and July was revised down by 110k. Monthly employment gains in August were much slower than last year. The average for the same period this year is also far lower by 400k in 2022.
The labor force participation rate rose to 62.8%, the highest level since the outbreak of the epidemic in February 2020. This shows that the labor market overall is cooling down, but still resilient.
The unemployment rate in the United States recorded 3.8% in August, higher than the previous value of 3.5%, and the market forecast was 3.5%, a new high in 18 months. The data showed that the healthcare, leisure, and construction industries increased hiring, while employers in the transportation and warehousing industry had larger layoffs. The number of job vacancies in these areas is high, leading to a sharp increase in the unemployment rate.
The core PCE price index in the United States recorded an annual rate of 4.2% in July, in line with expectations of 4.2%, a slight rebound from the previous value of 4.1%. U.S. personal spending recorded 0.8% in July, beating the expectation of a 0.7% increase and marking the biggest increase since January 2023.
Data from the U.S. Commerce Department on Wednesday showed that second-quarter GDP was revised down to a 2.1% annualized rate from the previous 2.4%. Consumer spending, government spending, and exports were revised upwards, while business investment and inventories were revised downwards. Economic growth slows down slightly, but the overall economy still has its strength.
The Atlanta Fed’s GDPNow model lowered its GDP growth forecast for the third quarter from 5.9% to 5.6%.
The initial value of the CPI annual rate in the Eurozone in August was recorded at 5.3%, higher than the market forecast of 5.1%, the same as the previous value of 5.3%. The inflation rate recorded 0.6%, higher than the previous value of -0.1%, and the market forecast was 0.4%, which indicated that inflation in the Eurozone has entered a stubborn stage. There are risks of inflation rebounding.
Federal Reserve Balance Sheet
The balance sheet of the Federal Reserve continued to shrink, and the size of the current period was reduced by US$17.75 billion to US$8,121.316 billion. It goes as originally planned.
Recession Indicator-U.S. Bond Yield Inversion
The U.S. economic data and labor data both cooled down this week, and the market lowered expectations for rate hikes within the year, alleviating the prospect of an economic recession. The 2-year bond annual yield fell sharply from 5%. As of the time of this report, 2/10 inversions have converged to 70.18bp, yet still deeply inverted.
Market Performance
Economic data, and labor market data such as job vacancies cooled this week, and the U.S. index has corrected sharply. However, the non-farm payroll is higher than the previous value and forecast. During this period, the core PCE price index increased moderately as expected， boosting the U.S. dollar, and the U.S. dollar index rebounded and broke through 104 again, continuing to bias bulls.
The probability of raising interest rates within the year is reduced. Gold failed to take hold of $2,000. In the short term, gold will still trade below $2000.
This week, the S&P 500 takes hold of 4330. As expectations for further interest rate hikes within the year were lowered, the S&P 500 rebounded sharply, regaining last week’s decline. U.S. stocks are still bullish at this stage.
After the US court overturned the SEC’s denial of last year’s application for Grayscale’s GBTC-to-spot ETF, the market expects that BTC ETF will be passed ahead of schedule, which will bring a large amount of incremental capital. BTC rallied. Then the SEC delayed several BTC ETF cases, the news disappointed the market. BTC lost the previous gain and continued to fall. The overall data and center of gravity of BTC continue to move down.
Summary
This week, the U.S. economic data and labor data have both cooled down, especially the labor market data dropped significantly. For the first time since the beginning of the year, the unemployment rate fell below 9 million, and the unemployment rate reached the highest level since February 2022, indicating that the labor market is gradually ripping off the influence of QT and QE of the pandemic. As inflation is gradually returning to normal, the positive labor market promotes a balance that helps contain inflationary pressures.
However, the PCE price index rebounded moderately, suggesting that it has not yet fully contained the pressure on prices; the strong performance of spending has brought new concerns. Generally, the current data will greatly reduce the probability of raising interest rates within this year. However, the cooling of labor data has not been fed back to the cooling of prices. The Fed is likely to maintain high-interest rates for a longer period of time.
Inflation in the Eurozone is more stubborn than that in the United States. As the Fed continues to maintain a high-interest rate, the ECB is likely to follow suit or even slightly raise the roof. The current interest rate is at its peak, the tightening cycle will continue and the inflection point is expected in 2024.
Completion of this report: 2023–0902–10:46 (UTC+8)
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