Daily Economic Update: September 5, 2023

The first full week of September starts with yields higher, the 2Y up ~4bps to 4.92% and the 10Y up ~5bps to 4.23% . GS research was out with a report where they cut their next 12- month recession probability assessment down to 15% from 20% and appeared to disagree with the notion that monetary policy will have impacts from 'long and variable lags' (maybe they've been reading John Cochrane's blog?).  In their report they also are confident the Fed is likely done hiking and call for very gradual rate cuts starting in 2Q2024.  Ahead of the weekend G20 meeting, the Financial Stability Board has a letter out this morning highlighting the risk of rising debt service cost such as real estate and leverage in the non-bank financial sector. Of course crypto risk and climate risk are in the letter as well.

On the day ahead we have Factory Order data, the highlight of the week is likely to be ISM services report and Fed Beige Book on Wednesday.  Hopefully the U.S. service sector data is better than China's where their services PMI hit an 8-month low.  Also in APAC the Royal Bank of Australia kept their policy stance on hold with the cash rate at 4.1%.  The dollar hitting a 43-week high against the AUD.

There has been a lot of talk about the resumption of student loan repayments (interest resumed accruing on Sep. 1), but some data is showing that some borrowers might have been making monthly payments as it became evident that payments would resume, so perhaps some of the impact could have been pulled forward.

On the week ahead the calendar looks like:
Today (Tue): Factory Orders
Wed: Fed Collins speaks, S&P PMI's and ISM Services data, Bank of Canada Rate Decision (10am) Fed Beige Book (2pm), Fed Logan speaking at 3pm
Thur: Jobless claims, Productivity and Cost, Fed Williams speaking 330pm, Bowman speaking 455pm..Goolsbee, Harker and Bostic also speaking during day
Fri: Wholesale Inventories, Consumer Credit

XTOD: When the market closes up on a Friday, it is a statement of traders' confidence. When it does it on a lot of Fridays, it becomes a more emphatic statement. Years ago, I studied this and found 6 weeks was a good lookback period. DJIA is up 7 of the last 8 Fridays.

XTOD: more than 73,000 festival attendees and campers are trapped with no access in or out of the Burning Man festival that takes place in Black Rock City, Nevada. This situation has arisen after a heavy overnight rainstorm transformed the once dry, dusty desert into an undrivable mud pit, causing disastrous conditions. Festival-goers have been asked to shelter in place and conserve food and water due to the poor conditions. Travelers were informed that burning man festival is closed, and anyone heading to the festival will be turned away, as a national emergency has been declared at the festival.

XTOD: Did a deep dive into the most interesting Jackson Hole paper and came away thinking that the optimal solution to Treasury market "dysfunction" is just yield curve control

XTOD: I agree with @jasonfurman  that real rates are most worrisome factor in fiscal outlook. As noted in a prior column, real rates have gone from well below real growth pre-pandemic to roughly equal now, removing an important stabilizing factor for the debt. 

XTOD: The question is which real assets?  Commodities never do well in a recession..Real estate gets taxed when governments implement wealth tax ..Gold price is manipulated via paper gold market..What else is out there?

XTOD: S&P: Despite a relatively innocuous July the global corporate default tally has hit 91, more than double the amount at this point last year and well above the 10-year average. 

XTOD: This is an interesting chart showing that Google trends for the word "strike" recently surged to record levels.  This spike implies a growing pressure among workers to secure improved compensation deals with their employers.  Labor strikes are becoming a regular occurrence in society, reminiscent of their prevalence in the 1970s.  These are unmistakable signs of an inflationary setting, where the rising cost of living is placing significant pressure on wages to rise.

XTOD: Modern day corporate America is essentially indentured servitude. They pay you enough monthly so you take out tons of liabilities that are enough to make you ‘comfortable’ - but not free from the payments of those liabilities.   Most Americans at the end of the month (or beginning) when they pay said liabilities put in their ATM card and have essentially little (or) no money left. The net relationship is essentially swapping your time to accumulate liabilities (swap time for net nothing) and said ‘luxuries’ - ie: I might be able to drive my two door sports car - but your employer can rug pull you at any moment interfering with that ability to continue paying your lenders to live a lifestyle you can’t actually afford.  Unfortunately I think 90+% of Americans are living a lifestyle they can’t actually afford (guilty of it myself, as well)....This line has never been more true, especially among younger gens: We’re “buying things [we] don’t need to impress people [we] don’t like”. 

https://twitter.com/McClellanOsc/status/1697806476604285180?s=20
https://twitter.com/rawsalerts/status/1698086890828665163?s=20
https://twitter.com/greg_ip/status/1698405585295659269?s=20
https://twitter.com/M_C_Klein/status/1697576222992286131?s=20 https://twitter.com/MichaelAArouet/status/1697924782505742732?s=20 https://twitter.com/lcdnews/status/1692525507374457051?s=20 https://twitter.com/TaviCosta/status/1697823580858581146?s=20 https://twitter.com/DonMiami3/status/1697828661787783177?s=20