Macro Economy Weekly | Bitmidas
2023–12–11
Unexpected high non-agricultural employment and interest rate cut expectations dampened
The slowdown in the U.S. economy and unexpected high non-agricultural employment growth may keep high-interest rates longer, dampening expectations of interest rate cuts; if inflation rises on Dec 12, Federal Reserve officials are likely to raise interest rates again…
Important Data of the Week
The monthly factory order rate in the United States in October was recorded -3.6%, compared with the previous value of 2.3%. The market forecast was -2.6% and manufacturing-related factors are still declining.
The U.S. ISM non-manufacturing PMI in November recorded 52.7, higher than the previous value of 51.8, and the market forecast of 52.
The final value of the US Markit service industry PMI in November was recorded at 50.8, which was the same as the previous value and market forecast. The US non-manufacturing and service industries remained stable and strong.
The number of layoffs by challenger companies in the United States in November was 4.551, compared with the previous value of 3.6836. The data shows that the labor market is still cooling.
The number of initial jobless claims in the United States in the week ending December 2 was 22, lower than the previous value of 21.9 and the forecast of 22.2. The data shows that the labor market is still cooling.
The U.S. non-agricultural employment rate in November was 19.9, higher than the previous figure of 15. The market forecast was 18. The U.S. labor force in manufacturing also rose in November, with 30,000 auto and parts workers returning from strikes, which is attributed to the unexpected growth.
The number of private non-agricultural employment in the United States in November was 15, far exceeding the previous figure of 8.5, a significant increase of 76.4%.
The U.S. unemployment rate recorded 3.7% in November, compared with the previous value of 3.9% and market forecast of 3.9%.
The average hourly wage rate in the United States recorded 0.4% in November, which doubled the previous value of 0.2% and 0.3% higher than market expectations.
U.S. non-farm data and unemployment rate data indicate that the cooling of the labor market is not enough, which may increase the weight of the Fed’s hawkish remarks; despite the unexpected increase in non-agricultural data, the overall labor market is still cooling, and there is a probability that interest rates will remain unchanged in December is 98.4%.
Non-agricultural data rose and the unemployment rate dropped unexpectedly, proving that the Fed may not have done enough, and it is possible to cut interest rates in March 2024. The interest rate has dropped to 43.8%, and May is still the most reliable time for interest rate cuts.
Federal Reserve Balance Sheet
The Fed’s balance sheet may continue to shrink independently of interest rates, and its size has shrunk to 7,737,395 ($M）, approaching the level during the epidemic in 2020.
Recession Indicators-U.S. Debt Inversion
The unexpected increase in non-agricultural data has reduced the probability of early interest rate cuts, keeping high-interest rates longer. Concerns about economic recession elevated, resulting in U.S. bond yields rebounding: 10-Y bond yield rebounds to 4.2257%, and the 2/10 inversion spread enlarged to 49.94bp.
Market Performance
After the U.S. index dropped to its lowest level of 102.160, the key support area, the U.S. index fell due to Powell’s hawkish remarks and the increase in non-agricultural data. The US dollar rebounded to the 104 area.
The unexpected growth of non-agricultural investors strengthened the cycle of maintaining high-interest rates and suppressed gold. After hitting a record high, gold continued to fall.
Bank liquidity has increased, and the S&P 500 continues to run strongly. It has exceeded 4600 and is heading towards the 4700 area resistance.
After BTC broke through the restrictive resistance of the $38k area, it successfully entered the $46k, the peak of second-wave structural height. The interest rate cut expectations, spot ETF expectations, and halving expectations still support bullish sentiment. This month is the time window for BTC to reach a high structural level.
Summary
Economic activities related to the U.S. manufacturing industry still cooling, while the non-manufacturing and service industries remain resilient and strong. This is in line with the U.S. fiscal expansion. This is closely related to the government deficit. (there will be a macro report like this in the next report).
The overall labor market is still cooling, but non-agricultural data showed growth, the unemployment rate dropped unexpectedly, and average hourly earnings increased month-on-month. Extraordinary growth will potentially support the Federal Reserve in maintaining high borrowing costs to ensure that inflation returns to its 2% target, and will discourage the market from moving ahead of schedule. Expectations of interest rate cuts earlier are replaced by an extension of the interest rate maintenance cycle.
In addition, the labor force participation rate and average weekly hours worked also increased, which is usually a sign of strong demand and also means that the Federal Reserve may not have done enough. After the strikes, the labor market may be at risk of turning to overheating. If inflation rebounds on Dec. 12, it will prompt the Federal Reserve to turn hawkish again. The probability of an early interest rate cut in March has dropped significantly, and the reliable time point has returned to May.
Completion time of this report: 2023–1209–10:20 (UTC+8)
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