Macro Economy Weekly | Bitmidas
2023–11–06
The U.S. interest rate hike cycle is coming to an end, and the rate cuts are expected to be brought forward
On Nov 2nd, the Federal Reserve’s interest rate decision remained unchanged at 5.25%~5.5%. Powell stated that the interest rate hike cycle is nearing the end. Earlier interest rate cut expectations rise…
Important Data of The Week
At 2 a.m. on November 2 (UTC+8), the Federal Reserve decided to maintain the target range of the federal funds rate at 5.25–5.5% for the second consecutive time. And they continue shrinking the balance sheet.
The U.S. labor cost index in the third quarter recorded a quarterly rate of 1.1%, higher than expected and the previous value (1.00%), indicating that U.S. employment cost in the third quarter accelerated. It heightened concerns that a strong labor market could push inflation above target.
Data from the U.S. Department of Labor showed on Friday that the U.S. non-agricultural employment rate increased by 15% in October, which was significantly lower than the previous figure of 29.7%. This was the smallest increase since June and was significantly lower than expected.
Data Breakdown: The U.S. employment participation rate in October was 62.7%, expected to be 62.80%, and the previous value was 62.80%. Private non-agricultural employment recorded 99,000 people, lower than the expected figure of 158,000 people, and the previous figure was 263,000 people. After seasonal adjustment, the number of government sector employment recorded 51,000 people, compared with the expected figure of 29,000 people, and the previous figure was 73,000 people. After seasonal adjustment, manufacturing employment was recorded at -35,000, compared with the expected figure of -10,000, and the previous figure was 17,000. The average weekly working hours were recorded at 34.3, lower than expectations of 34.4 and the previous data of 34.4. The average hourly wage rate recorded 0.2%, lower than the expected 0.30%, and the previous value was 0.20%. The average hourly wage rate recorded an annualized rate of 4.1%, compared with expectations of 4.00% and the previous value of 4.20%.
Data from the U.S. Department of Labor showed on Friday that the U.S. unemployment rate recorded 3.9% in October, the highest level since January 2022. Market expectation was 3.8%.
The Bank of England kept its benchmark interest rate unchanged at 5.25%, in line with market expectations. Bank of England Governor Bailey said they would monitor and assess whether further interest rate increases are needed, and stressed that policy may need to remain tight for a long time; in the latest forecast, there is a 50% chance that the UK economy will fall into recession and inflation will return to the 2% target level by the end of 2025.
The initial annual CPI for the Eurozone in October was 2.9%, the lowest since July 2021. This data is likely to reinforce the ECB’s views on the end of interest rate hikes
Eurozone third-quarter GDP was registered at an annualized rate of 0.1%, weaker than expected, with Germany’s slowdown proving to be a drag.
The final manufacturing PMI in the Eurozone in October was recorded at 43.1. Since June 2022, it has been below the threshold and is still declining, indicating that the economy is in a recession.
The final value of Germany’s manufacturing PMI in October was recorded at 40.8, a slight rebound from the previous value of 39.6. However, the stagnation dragged down the Eurozone PMI and GDP.
Federal Reserve Balance Sheet
The Federal Reserve keeps interest rates unchanged at 5.25%~5.5%, but the Federal Reserve’s balance sheet will continue to shrink, and its size has been reduced to $7,866.664 billion.
Recession Indicators-U.S. Debt Inversion
The U.S. Treasury bond market pushed forward expectations that the Federal Reserve would cut interest rates after the release of non-agricultural employment data, and U.S. bond yields fell sharply. The 10-year note bond yield fell from 4.837% to 4.5765%, and the 2-year note bond yield fell to 4.8449%; the inversion spread is 26.84bp.
Market Performance
The non-agricultural data was significantly lower than the previous value and expectations, and the market brought forward the expectation of the Federal Reserve to cut interest rates, weakening the support of the US dollar, and the US dollar fell and broke 106 to 105.
The Palestinian-Israeli conflict situation is still out of control, and support for gold is strong. The U.S. non-agricultural data has cooled down significantly, which boosts Gold. After a slight correction, it hit the $2,000 mark again.
The decline in U.S. bond yields has eased the pressure on U.S. stocks. The non-agricultural data has cooled down, causing U.S. bond yields to fall sharply and raising expectations about interest rate cuts. The S&P 500 formed a V-shaped rebound at the key support of 4100. The overall U.S. stock market is still operating at a high level.
Under the expectation of the Bitcoin halving, spot ETF approval, as well as the advance of interest rate cut expectations, BTC continues to climb to the highest level in a year, attracting capital to continue to enter the market. The crypto market is easy to rise but difficult to fall in the short term.
Summary
The Federal Reserve kept interest rates unchanged at 5.25%~5.5%. Powell stated that the interest rate hike cycle might be coming to an end. The room for another or more interest rate increases is to deal with an unstable labor market and uncertainty about geopolitical conflicts.
The U.S. The Bureau of Labor Statistics said that the number of new non-agricultural jobs in August was revised down from 22.7 to 16.5 people; the number of new non-agricultural jobs in September has been revised down from 33.6 to 29.7. After the revision, the total number of new jobs in August and September was 101,000, lower than that before the revision. Total nonfarm employment increased by 150,000 people in October, which was slower than the average monthly increase of 258,000 people over the past 12 months.
The market expects the Federal Reserve to cut interest rates by mid-2024. Some radicals have predicted it by early or mid 2024.
Europe has been dragged down by the economy and inflation has dropped significantly, solidifying expectations that it will no longer raise interest rates. The United Kingdom has closely followed the Federal Reserve’s policy and also maintained its interest rate for the second time. Interest rate hikes are near the end, and the sharp cooling in US Agricultural data consolidates this trend. There is a consensus that the interest rate cut expectations are brought forward. If the geopolitical conflict does not escalate, the interest rate cut cycle in the United States and Europe is expected to begin as early as 2024.
Completion of this report: 2023–1104–10:17 (UTC+8)
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