Macro Economy Weekly | Bitmidas
2023–08–07
The Labor Market Cooling, and No Need for Further Interest Hike
Fitch lowered the U.S. government debt rating, triggering market panic; non-agricultural data cooled significantly after seasonal adjustment, Fed officials expressed that there is no need to raise interest rates anymore…
Important Data of the Week
ADP employment in the United States recorded 324k in July, lower than the previous value of 455 after the revision, but far more than the expected 189.
The seasonally adjusted non-agricultural employment in the United States recorded 187 people in July, lower than the market forecast, but higher than the revised previous value of 185. The Bureau of Labor Statistics said employment in government health care, social assistance, financial activities, and wholesale trade continued the upward trend. The number of new non-agricultural employment in May was revised down from 306k to 281k; that in June was revised down from 209k to 185k. After the revision, the total number of newly added jobs in May and June was lower by 49k.
The unemployment rate in the United States recorded 3.5% in July, which was lower than the previous figure and market forecast of 3.6%, and the number of unemployed people was 5.8 million. Since March 2022, the unemployment rate has been relatively stable between 3.41% and 3.7%.
The final value of the Markit manufacturing PMI in the United States in July recorded 49, in line with expectations, but still below the line of threshold.
In July, the Dallas Fed’s business activity index recorded -20, higher than the previous value of -23.2 and the market forecast of -22.5, achieving the 2nd consecutive rebound and the highest in 3 months. Business activities strengthened, but it is still in the recession zone.
The monthly rate of factory orders in the United States recorded 2.3% in June, higher than the previous value of 0.4% and the market forecast of 2.2%.
Federal Reserve data released on Thursday showed that, as of Wednesday, the BTFP tool launched after the failure of Silicon Valley Bank increased by $606 million in a week to a new record $106 billion. The BTFP bailout will theoretically end in seven months. Fund outflow being continued, and regional banks will face a liquidity shortage at that time.
The decoupling between money market fund inflows and bank deposit outflows continued. The U.S. money market fund weekly inflows (up from $29 billion last week) totaled an all-time high of $515 million, while bank liabilities deposits kept flowing out.
For the first time since early 2021, the U.S. Treasury Department increased the issuance of longer-maturity bonds in quarterly refinancing operations from 96 billion to 103 billion. Fitch this week downgraded the US treasury bills from AAA credit rating to AA+. The negative outlook is a result of the frequent rising of U.S. fiscal budgets and poor governance.
Federal Reserve Balance Sheet
The labor market is cooling down, and the Fed continues to shrink its balance sheet as planned, reaching a new low since July 2021.
Recession Indicator-U.S. Bond Yield Inversion
The non-agricultural data dropped. Fed officials said that there is no need to raise interest rates in September. The business index rebounded. The market’s fears of recession have eased. As of the time of this report, the 2/10 bond yield inversion has converged to 72.65 bp.
Market Performance
This week, the U.S. dollar continued to rebound under the high-interest rates. The non-agricultural data was revised down and the labor market cooled, so the U.S. dollar stopped rising and fell after officials said that there is no need to raise interest rates in the future.
Gold continued to run weak this week, and the market was affected by the U.S. index. After the release of the non-agricultural data, the price of gold fell and then recovered shortly, coming back to a level above 1940.
Affected by Fitch’s downgrade of the U.S. government debt rating, U.S. stocks continued to correct. The S&P 500 fell below the rising channel and dropped below 4500. A large amount of long funds closed their positions and left the market.
This week, BTC rebounded to $30047, but it was unable to break through the resistance of $30165~$30387. The non-agricultural data failed to fuel BTC. Affected by the SEC’s stricter regulation, BTC remains weak.
Summary
The Federal Reserve continues to raise interest rates and shrink its balance sheet, further tightening the financial environment; Fitch predicts tightening credit conditions in the United States will continue, and the cooling of business investment and consumption will drag the U.S. economy into a mild recession in 4Q 2023 and Q1 2024. Fitch believes that US governance has been deteriorating over the past 20 years in terms of fiscal and debt issues, thus lowering its AAA credit rating to AA+.
Economic data has strengthened but is still on the verge of a recession. The BTFP bailout facility continues and money is still flowing out. there will be a large gap in the future, which is still hidden from the present data. The 2/10 inversion of the U.S. bond yield has converged, but it is still deeply inverted. The market’s recession sentiment has eased, but concerns remain.
Non-agricultural employment saw the smallest increase since December 2020. Compared with the previous two months, the revised data decreased. Fed Bostic is satisfied with this data, stating that US job growth is slowing down in an orderly manner, and there is no need for further rate hikes to ease inflation. On the whole, the macro data are mixed, and the market is still waiting for a clear signal.
Completion of this report: 2023–08–05 (UTC+8)
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