Macro Economy Weekly | Bitmidas
2023–07–10
Labor Market Warning & Unexpected Payroll Cooling
ADP employment doubled to 497k, and the labor market signals a strong warning of continuous inflation. However, non-agricultural employment surprisingly cooled down. Another pressure may force the Federal Reserve to cut interest rates at a certain point. The market focus on the next CPI…
Important Data of the Week
The Markit manufacturing PMI in the United States in June recorded 46.3, the same as the previous value and the market forecast value; the ISM manufacturing PMI in the United States recorded 46 in June, lower than the previous value of 46.9 and the market forecast value of 47, all below the threshold and showing a downward trend.
The ADP employment in the United States recorded 497 in June, doubling the previous value of 267 and the market forecast of 228.
In June, the Challenger Job-Cut Report recorded 40709 layoffs, which was lower than the previous value of 80089. The layoffs have eased significantly and employment has shown signs of recovery.
The number of initial jobless claims in the United States for the week ended July 1 was 248k, higher than the previous value of 236k and the market forecast of 245k.
The seasonally adjusted non-agricultural employment population of the United States in June recorded 209k, lower than the previous value of 306k after a downward revision and the market forecast value of 225k. In contrast to the ADP employment number, it shows that the overall labor market is experiencing a cooling, though limited.
The unemployment rate in the United States was recorded at 3.6% in June, lower than the previous value of 3.7%. Layoff data and unemployment rate data show that employment has begun to stabilize.
The rolling interest (TTM) on U.S. Treasuries is close to $600 billion. This is a sharp increase from the US$350 billion in early 2022, putting great pressure on the US finances.
The manufacturing PMI in the Eurozone in June recorded 43.4, which was lower than the previous value and the forecast of 43.6, still below the threshold and showing an overall downtrend. The overall economy of the United States and Europe is still in recession.
Fed Balance Sheet
The Fed continues to shrink its balance sheet as planned and reaches a level lower than the level before the bank run. The current scale is 42.602 billion US dollars. At present, the Fed’s balance sheet is still in a downward trend from a high level, and there is still a lot of room for shrinking its balance sheet.
Signal of a Recession — US Bond Yield Curve Inversion
With the unexpected decline in non-agricultural data and the cooling of the labor market, the probability of another rate hike in November has dropped from 45% to 39%. In other words, the probability of raising interest rates after July has decreased and the market’s concerns about recession have dropped. As of the time of this report, the 2/10 U.S. bond yield basis has converged from 100bp to 87.45p, yet is still deeply inverted.
Market Performance
The unexpected decline in the non-agricultural data has weakened the probability of a second rate hike this year, and the support for the dollar has been weakened, falling below the 103 area, the low in June.
The ADP data put pressure on gold, while the non-agricultural data unexpectedly cooled, allowing gold to recover the losses caused by ADP, and gold as a whole is still adjusting at a high level.
U.S. stocks this week, due to the fact that most of the stocks that had soared in the early stage, deviated from the uptrend, with dying momentum. The S&P 500 fell back to the lower bound of the upward range.
BTC has been suppressed by the resistance at the $31470 area for 3 consecutive weeks and has been adjusted at a high level. The market starts to build a platform at $3w, with consolidation narrowing down before a short-term breakout.
Summary
The U.S. manufacturing data is still below the threshold, and the economy as a whole is still in a downturn. The ADP data unexpectedly exploded, causing the pressure to raise interest rates, which in turn exerts greater pressure on the economy. An unexpected cooldown in data eased then that concern, with U.S. interest rate futures pricing in a lower chance of a rate hike after July.
The manufacturing data in the Eurozone is also below threshold, showing a clear downward trend and monetary liquidity is still in a stage of continuous tightening, and the recovery of the world economy still lacks momentum.
The unexpected burst of ADP data and the unexpected drop in non-agricultural data have raised doubts about whether the labor market can effectively cool down; with the increase of the US debt ceiling, the pressure of issuing new debt and bond yields uptrend (every month some low-yielding bills mature and are replaced by much higher-yielding bills and bonds), Fed is more pressed to cut interest rates to alleviate this pressure. According to the current data, the probability of raising interest rates after July is not high, the interest rate peak is just around the corner. The focus is still on the CPI. If the CPI continues to decline significantly, the interest rate peak will not last long.
Completion of this report: 2023–0708–09.30 (UTC+8)
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