It's like the olympics of central bank meetings this week with 3 central bank meetings (FOMC, BOJ and BoE). Of the 3 CB's, the most interesting might be Japan, where a rate hike could still be in the cards. The BoE and Fed are likely on hold, but BoE has decent odds towards a cut. Friday's PCE data was largely in line with expectations and markets seemed to like the fact that Personal Income was lower than expected, so let's cheer people making less because it increases the chance the Fed cuts? Is that the narrative?
With Jobs Day on Friday, I thought I would reflect on how last week everyone was worried about recession because of rising unemployment. Then Claudia Sahm of the Sahm rule wrote a lot of words that I think said, the rule is sending the right signals in terms of risk of recession, but it's complicated. Got it! And Goldman research said we shouldn't be too concerned with the rise in unemployment because in part (they had 3 reasons: (1)there haven't been layoffs (2) the Fed has plenty of room to cut and (3) there are temporary labor frictions) because people aren't losing their jobs:
"First, the recent rise in the unemployment rate breaks with the historical pattern in one crucial respect—there has not been an increase in the layoff rate, which remains historically low. This is important because it means the economy is not experiencing the usual vicious circle in which job and income loss lead laid-off workers to reduce their spending, leading to further job loss. The increase in the unemployment rate has instead come partly from a surge in labor supply driven by immigration, with which job growth has not quite kept up. But job growth is far from weak, and with final demand still growing at a robust pace, it appears set to remain fairly solid.
Overall economists as usual don't know and this time immigration is clouding the employment picture.
In the words of Vanguard founder John C. Bogle from his book "Enough.":
"Today, in our society, in economics, and in finance, we place far too much trust in numbers. Numbers are not reality. At best they are a pale reflection of reality. At worst they're a gross distortion of the truths we seek to measure. But the damage doesn't stop there....By worshipping at the altar of numbers and by discounting the immeasurable, we have in effect created a numeric economy that can easily undermine the real one."
Internationally we have Israeli striking Hezbollah following a Hezbollah missile strike that hit a soccer field in Israel. The rising tensions between Israel and Hezbollah in Lebanon risk expansion of conflict in the Middle East. We also have a crazy story of two Mexican narco lords, one of the sons of El Chapo and the other known as 'El Mayo', were arrested in Texas.
On the week ahead the big U.S. data is FOMC and Jobs, but there are plenty of "important" data releases throughout. We also get more mega-cap tech earnings from 4 of the Mag 7 (Apple, Amazon, Microsoft and Meta).
Monday: recover from the weekend and prep yourself for having to listen to pundits talk all week about central banks and jobs
Tuesday: Home Prices and JOLTS
Wednesday: BOJ (overnight) FOMC at 2pm before that ADP Employment
Thursday: BoE, Jobless Claims, ISM Mfg
Friday: Jobs Day, factory orders
XTOD: The Biden Administration is concerned that the Hezbollah Rocket Attack earlier on a Youth Soccer Match in the Town of Majdal Shams, could be the Spark which leads to an All-Out War against Hezbollah; with a Senior U.S. Official telling Axios, “What happened today could be the Trigger we have been worried about and tried to avoid for 10 Months.”
XTOD: A disingenuous take is when someone predicting economic collapse says "I hope I'm wrong, I would love to be proven wrong here." Of course there are some very smart pessimists but I think some fantasize about economic collapse because in a world where everyone is suffering they would feel better about themselves by comparison.
XTOD: Macro view
Financial conditions are NOT restrictive
Growth will bounce
Inflation will stick at to high levels
Earnings estimates for 2025 will not be realized
Fed won't cut in 2024
Treasury is stuck and will be forced to up coupon issuance
Long term bonds have no upside
Equities are stupid rich
Positioning remains massively overweight long by long only and hedge fund shorts are moderate
XTOD: Today’s PCE report on inflation and spending was already baked into yesterday’s GDP report. They showed an economy, where discounting is luring consumers to open their wallets a little further, especially for big ticket items that often require financing.
Still, there were new data in the report. Spending outpaced personal disposable incomes, and the saving rate fell to its lowest rate since December 2022. Consumers are leveraging home equity and other lines of credit to pick up their spending on everything at appliances, furniture and building material and garden stores. Much of those gains were in higher income households as those at the lowest rungs of the income strata have tapped the saving they amassed during the pandemic and then some.
XTOD: Teen Allegedly Derailed BNSF Freight Train For "Insane" YouTube Footage
https://x.com/sentdefender/status/1817274210034831748
https://x.com/morganhousel/status/1817267614588260511
https://x.com/dampedspring/status/1816803013933076791
https://x.com/DianeSwonk/status/1816831405889823014
https://x.com/zerohedge/status/1817717962230403116
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