Money Guide | jobs & inflation
Also: Indicators, World Watch, Weekly Agenda, News, Musings, Opportunities
Money Guide is a personal project, supported by paid-subscriptions. I hope that all readers find the news timely and relevant, the musings interesting, the opportunities attractive, and my thoughts enriching and provoking.
In this issue: Dollar scarcity, Higher rates warnings, Earnings wrap-up, Stanford settlement, Wormhole hacker counter-exploited, 0DTE options, Corporate Bond ETFs risks, Fractional real-estate, India emergence, Bitcoin ordinals, and a few thoughts on jobs & inflation
Indicators
Previous update: February 26th, 2023
π’=positive mid-term forecast*
π΄=negative mid-term forecast*
βͺ=neutral mid-term forecast*
π©=positive past-period performance
π₯=negative past-period performance
β¬=neutral past-period performance
β²=increase during past-period
βΌ=decrease during past-period
β=no change during past-period
Click here for an in-depth look at how to read the Money Guide Indicators
ππ©βΌ US Inflation: 6.40% (vs 6.50% 12/22)
ππ₯β² US Funds Rate: 4.75% (vs 4.50% 11/22)
ππ₯β² US 02Y T-Note: 4.75% (vs 4.69%)
ππ₯β² US 10Y T-Note: 3.96% (vs 3.95%)
ππ©βΌ DXY index: 104.53 (-0.7% vs 105.26)
ππ©β² EURUSD: 1.06 (+1.0% vs 1.05)
ππ©βΌ EU Inflation: 8.50% (vs 8.60% 01/23)
ππ₯β² EU Funds Rate: 2.50% (vs 2.00% 11/22)
ππ©βΌ USDMXN: 17.95 (-2.3% vs 18.38)
ππ₯β² MX Inflation: 7.91% (vs 7.82% 12/22)
ππ₯β² MX Funds Rate:11.00%(vs10.50% 11/22)
πβ¬β MX 01Y Cetes: 12.09% (vs 12.09%)
ππ©β² DJIA: 33425 (+1.6% vs 32906)
ππ©β² S&P500: 4045 (+1.9% vs 3969)
ππ©β² NDQ100: 12344 (+2.0% vs 12106)
ππ©β² RUT: 1928 (+1.4% vs 1902)
ππ₯β² GSCI: 595.85 (+3.2% vs 577.58)
ππ₯β² Brent Oil: 87.14 (+5.9% vs 82.26)
ππ₯β² Gold: 1855 (+2.5% vs 1809)
ππ₯βΌ BTC: 22432 (-4.8% vs 23556)
ππ₯βΌ ETH: 1564 (-4.7% vs 1641)
π|β¬ Overall
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World Watch
πβ¬ International conflicts (Ukraine, US vs China, Middle East, East Asia)
ππ© Local conflicts (US, Latin America, Europe, China)
ππ₯ International Trade and Commodities (Shortages, chain disruptions)
ππ© Bond markets (Liquidity, Participants, Volatility)
πβ¬ Corporate health (Q42022 reports, 2023 forecasts)
For more:
2023 Threats
2023 Threatsβ status updates
Weekly Agenda
All times are US ET (GMT-5)
Monday, February 6th
22:30 π AU RBA Interest Rate Decision
(Previous: *, Expected: *)
Tuesday, February 7th
10:00 π US Fed Chair Powell report to US Congress β οΈ
Wednesday, February 8th
10:00 π US Fed Chair Powell report to US Congress β οΈ
10:00 π US JOLTS Job Openings report β οΈ
10:00 π CA BoC Interest Rate Decision
(Previous: *, Expected: *)
20:30 π CN Inflation Rate reports
(Previous: *, Expected: *)
Thursday, February 9th
07:00 π MX Inflation Rate reports
(Previous: 7.91%, Expected: 7.69%)
22:00 π JP BoJ Interest Rate Decision
(Previous: *, Expected: *)
Friday, February 10th
08:30 π US ADP Non-Farm Payrolls report β οΈ
(Previous: *, Expected: *)
08:30 π US Unemployment Rate report β οΈ
(Previous: *, Expected: *)
Q4 Earnings reports during the week
β οΈProbable high volatility when information is released to the public
(Click here to read about the usual market behavior)
*Forecasts, analysis and additional information in the previous sections are available only in the premium edition of Money Guide for paid-subscribers
News
π° π΄ Worldβs riskiest markets stumble into crisis with Dollars scarce | In some of the worldβs most vulnerable developing nations, the situations on the ground are dire. Shortages of dollars are crimping access to everything from raw materials to medicine. Meanwhile governments are struggling with their debts as they chase rescue packages from the International Monetary FundΒ (link)
π° π΄ What to watch in the February Jobs report | Another blowout surge in hiring isnβt predicted, but the underlying trend of strength in the labor market is expected to continue (link)
π° π΄ Powell set to lay groundwork for higher rates on Capitol Hill | Some policymakers are suggesting they may have to do more to tame prices following a series of strong reports on jobs, prices and consumption, which have spurred traders to bet the Fed will hike beyond the 5.1% level officials estimated in DecemberΒ (link)
π° π΄ Euro Zone prices dip to 8.5% as ECB flags rate hiking not over | On top of a small drop in headline inflation, the core figure -which strips out energy and food costs, and is therefore less volatile- picked up to an estimated 5.6% in February, from 5.3% in January (link)
π° π΄ What you need to know about this Earnings season | About 99% of all S&P 500 companies have reported their fourth quarter earnings and the results, particularly for tech companies, are underwhelming (link)
π° π’ BOJ Watchers See Higher Chance of June Shift After Ueda Hearings | During hearings that spanned a total of nearly eight hours, Ueda repeatedly said itβs appropriate to continue with monetary easing. While Ueda gave no hint of a desire to pivot quickly, analysts appear to have made some recalibration for the BOJβs policy path (link)
π° βͺ Meet the 4 men tapped to run China's Economy | The team of Communist Party officials running China's economy is about to get a major makeover. (link)
π° π© TD bank reaches $1.2 Billion settlement in ponzi scheme lawsuit | TD Bank will pay $1.2 billion to settle a lawsuit alleging its involvement in an infamous $7 billion Ponzi scheme orchestrated by disgraced financier Allen Stanford more than a decade ago (link)
π° π΄ $30 million of Funko Pop! toys get thrown in the trash | Thirty million dollars worth of Funko Pop! figures -- those big-headed, vinyl pop-culture dolls -- will soon make their way into the hands of a new collector: The garbage collector. (link)
π° βͺ Jump Crypto just counter-exploited the Wormhole hacker for $140 million | The Wormhole hacker could have gotten away with it too, if it wasn't for that pesky upgradeable smart contract (link)
Musings
π βͺ Clueless Wall Street is racing to size up Zero-Day Options boom | Everyone from amateur sleuths on Reddit to highly paid Wall Street technicians have joined the fray, dispensing daily theories about how big a threat these quick-trigger instruments poseΒ (link)
π π΄ The age of the Silicon Valley Moonshot is over | Big Tech companies spent years pouring money into ambitious ideas like drone delivery and extending human life spans. Those days are over (link)
π π΄ The inherent flaws of Corporate Bond ETFs | The investment vehicles present a worrying systemic vulnerability (link)
π π΄ Is fractional real-estate a good investment? | Buying a home is more out of reach than ever. But a new investing trend could spell trouble (link)
π βͺ How the market has changed in the 20+ years I've covered it | There have been a LOT of changes on Wall Street since I first joined CNN in November 2001. (link)
π βͺ Lamar Jackson and the NFLβs salary cap capably indicate what βinflationβ isnβt | As the price of quarterbacks rises in the NFL, other positions are seeing their value declining in a relative sense (link)
Opportunities
π‘ India's GDP growth outpaced China last quarter | The milestone comes despite high inflation and low consumer demand (link)
π‘ Bored Ape Creator to Debut First Bitcoin NFT as Purists Rage | Yuga Labs plans to auction a collection of 300 generative pieces on the Bitcoin blockchain called TwelveFold in what could be the kind of event Bitcoin purists say will slow down the network (link)
A few thoughts onβ¦
jobs & inflation
As I mentioned in the Indicators and Weekly Agenda sections above, this week the spotlight is on Jobs reports.
Like every other market, the Jobs Market is sensitive to Inflation dynamics that relate to every other market. When wages go up, companies might be pushed to increase their prices to protect their bottom line. When prices go up, people might be pushed to demand higher wages to cover their expenses. Even just the expectation of Inflation sets these cycles in motion.
Like every other market, the Jobs Market reacts to Supply-and-Demand dynamics.
If there are many applicants (supply), and only a few job openings (demand), those applicants will become less expensive (through their wages) because supply outweighs demand. Conversely, if there are many job openings (demand) and only a few applicants (supply), those applicants will become more expensive (through their wages) because demand outweighs supply.
Usually, there are two main scenarios:
Low unemployment with high inflation
Companies have more income because prices are higher, which can be used to hire more people. Since there is a low supply of unemployed people, wages increase and contribute to even higher inflation.
High unemployment with low inflation
Companies have less income because prices are lower, which discourages from hiring more people. Since there is a high supply of unemployed people, wages do not increase and do not contribute to higher inflation.
Bill Phillips arrived at those two extremes as the main conclusions of his studies. The βPhillips Curveβ shows the theoretical inverse correlation between unemployment and inflation. A sort of pick-your-poison dilemma for governments. They could either have low unemployment or low inflation, but not both.
Although his theory has been seriously questioned (it canβt explain high inflation and high unemployment as seen during stagflation periods), some of its principles are very handy to understand current economic conditions.
The US Federal Reserve has a dual mandate to preserve price stability and full employment. In real terms, price stability or full employment canβt be achieved, but they aim to be as close to those benchmarks as possible. Itβs no coincidence that those are the variables seen on the Phillips Curve, and the main tool US Fed uses to influence them are interest rates:
By raising rates, money becomes more expensive to borrow, and interest makes future money more valuable.
The overall result is a reduction on the general economic activity, and the market forces that normally push prices higher (investing, development and supply/demand dynamics).
The common consequences are: unemployment (as explained by the Phillips Curve) and prices dropping (including commodities, products, services, bonds, stocks, and almost everything else).By lowering rates, money becomes cheaper to borrow, and low interest makes future money less attractive.
The overall result is an increase on the general economic activity, and the market forces that normally push prices higher (investing, development and supply/demand dynamics).
The common consequences are: high employment (as explained by the Phillips Curve) and prices rising (including commodities, products, services, bonds, stocks, and almost everything else).
We are now dealing with high inflation. Some speak of a recession, but the US Economy keeps going and is not showing signs of slowing down. A strong economy feeds inflation, and that is precisely what the US Fed is trying to fight by raising the Target Interest Rate.
If Jobs reports continue to show low figures of unemployment, and high figures of job openings, it will mean that economic conditions have not cooled enough for inflation to come down, and the US Fed will keep tightening. In our current situation, good news are bad news, and bad news are good news. And as it turns out, both cases are bad.
take care, have fun, be chill
-SM
There is more to life than money. Be in the knowβ¦
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