Fewer jobs is better?

Thoughts of the Day

This is the current situation the US economy is facing. If the US jobs data to be released today shows that fewer jobs are being created (expected is +163K jobs added in Dec), it will strengthen the belief that the US Federal Reserve has hiked interest rates for the last time in this cycle.

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Day Ahead

The Euro area inflation is expected to show that prices rose 3% YoY compared to 2.4% previously. The core index is expected to show a 3.5% rise in prices vs 3.6% previously.

Canada labour: Unemployment rate is expected to rise to 5.9% from 5.8% previously. Employment change is expected to show 12k jobs being added to the economy vs 24.9k previously.

US Non Farm Payrolls: 163k jobs expected to be added to the economy vs 199k previously. Unemployment rate expected to rise to 3.8% from 3.7% previously. Average hourly earnings are expected to rise 3.9% YoY compared to 4% previously.

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What Happened Yesterday

Market Movements as of New York Close 4 Jan 2023
  • The US ADP Employment Change showed that 164k jobs were added to the economy in December (vs 115K expected), way above the downwardly revised 101k figure previously (revised from 103k).
  • The US Treasury Yield curve inversion narrowed to 0.39% as the US 2-year bond yield rose +0.05% to 4.38% while the 10-year bond yield rose +0.08% to 3.99%.
  • The US stock futures traded within a range through the Asian and London trading sessions with the S&P 500 futures down a mere -0.09% when the New York session began.
  • The US stock market opened almost unchanged from Wednesday. It then made an attempt to grind higher in the early New York session. However, the rally was short lived as the market soon made a U-turn and fell for the rest of the session. Consequently, the S&P 500 closed -0.34% on the day (high: +0.47%, low: -0.37%), the Dow Jones eked out a gain of +0.03% (high: +0.76%, low: -0.01%) while the Nasdaq fell -0.53% (high: +0.31%, low: -0.56%). 
  • The crypto market rebounded on Thursday as we saw comments from Bloomberg ETF analyst Eric Balchunas that the SEC was giving final comments to ETF issuers and TechCrunch reporter Jacquelyn Melinek saying that the SEC will soon approve multiple applications, citing sources “extremely close to the matter.”
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Headlines & Market Impact

Weekly US jobless claims fall to two-month low; labour market steadily cooling

Notable Snippet: The number of Americans filing new claims for jobless benefits dropped to a two-month low last week, pointing to underlying labour market strength even as demand for workers is easing.

With the report from the Labor Department on Thursday also showing the number of people on unemployment rolls remained elevated towards the end of December, financial markets continued to anticipate that the Federal Reserve would start cutting interest rates in March.

The government reported on Wednesday that job openings fell to a near three-year low in November. Labour market resilience is expected to again shield the economy from recession this year.

“The labour market is not too hot and not too cold at the moment,” said Christopher Rupkey, chief economist at FWDBONDS in New York. “The total number of Americans on the jobless rolls receiving benefits remains elevated relative to prior year levels, but at the moment there is not enough unemployment to say the economy is on the downward slope to recession.”

Initial claims for state unemployment benefits dropped 18,000 to a seasonally adjusted 202,000 for the week ended Dec. 30, the lowest level since mid-October. Economists polled by Reuters had forecast 216,000 claims for the latest week.

Claims data tend to be volatile around this time of year because of holidays. They have largely bounced around in the lower end of their 194,000-265,000 range for 2023.

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Biden administration slowly puts oil back into the SPR emergency stash

Notable Snippet: The administration has bought back 13.82 million barrels of domestically produced, sour, or relatively high sulphur oil that many U.S. refineries are engineered to distil into fuels.

It also has sped up by several months the return of nearly 4 million barrels to the SPR from loans to oil companies. The oil is expected to be returned by February instead of mid-year.

The pace of the buybacks is being tempered by planned life extension maintenance at two of the four SPR sites, department officials have said.

Quick buybacks of much larger volumes could also risk pushing up oil and gasoline prices ahead of the presidential election in November, analysts have said.

The administration says it has a three-pronged strategy to return oil to the reserve. That includes buying back oil, the return of oil loaned from the SPR to companies, and its work with Congress to cancel congressionally mandated sales of 140 million barrels of SPR oil through 2027 that both Democratic and Republican lawmakers had voted for in previous laws.

The U.S., which is producing oil at record volumes with more increases expected this year, also has more crude in the SPR than it is required to as a member of the Paris-based International Energy Agency, the West’s energy watchdog. Under the agreement, the U.S. is required to hold 90 days’ worth of net petroleum imports.

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Alibaba was once a Wall Street darling. After plunging 75% over three years, what’s next?

Notable Snippet: The company’s cloud computing unit was poised to capture AI’s growth for investors in a public listing, until Alibaba pulled those plans in November. The group’s U.S. market value fell below that of e-commerce rival PDD, signalling struggles in the industry that had propelled Alibaba onto the global stage with the world’s largest IPO in 2014.

On the political front, Alibaba was a poster child for China’s crackdown on internet tech companies — receiving a record fine of $2.8 billion for alleged monopolistic behaviour in 2021. Slowing economic growth hasn’t helped its business either.

But the scrapped cloud IPO plans and management shake-up in the last year reflect bigger problems for a company that has served as a bellwether for foreign investors in China. Alibaba’s stock has plunged to below $77 a share, down by 75% from more than $300 in 2020.

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Best,
Phan Vee Leung
CIO & Founder, TrackRecord