Is it time for the Fed to worry about unemployment?

Thoughts of the Day

The US unemployment rate rose unexpectedly to 3.9% in Feb, (EXP 3.7%, PREV 3.7%), indicating a potential economic slowdown. With inflation nearing the Fed’s 2% target, the focus may shift to interest rate cuts if upcoming CPI data (to be released on Tuesady) confirms the trend.

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Week Ahead

Monday:

Tuesday: The US Consumer Price Index is expected to show that prices rose +3.1% Year-on-Year in Feb as it did in Jan. The core index is expected to show that prices rose +3.7%, lower than the previous print of +3.9%.

Wednesday:

Thursday: The US Producer Price Index is expected to show that prices rose +1.2% Year-on-Year in Feb, up from +0.9% in Jan. The core index is expected to show that prices rose +2% as it did in January.

Friday: The Preliminary data for the US University of Michigan Consumer Sentiment will be released along with inflation expectations.

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What Happened Yesterday

Market Movements as of New York Close 08 Mar 24 (10 Mar for Cryptos)

The US Nonfarm Payrolls (NFP) report for February 2024 showed that the US economy outperformed expectations by creating +275K jobs (vs expected +200K) but January’s figure was reduced from an initial +353K to +229K. This revision marked a significant decrease from January’s initial report, the highest in a year, with December’s figures also seeing a -43K revision to +290K. As a result, the total employment figures for January and December were -167K lower than initially reported. As such, the jobs market is not as strong as it seemed from the headline number.

The labour force participation rate held steady at 62.5% for the third month in a row, remaining at its lowest since February 2023. Average hourly earnings saw a year-on-year increase of +4.3% (vs expected +4.4%) and last month’s number of 4.5% was revised lower to +4.4%. This indicates that wage growth is not as strong as expected. 

The unemployment rate climbed by +0.2 percentage points to 3.9% in February 2024, reaching its highest since January 2022 and exceeding predictions of 3.7%.The jump in Unemployment rate will increase the risk that the currently restrictive monetary policy will tip the economy into a recession if the US Federal Reserve do not consider cutting interest rates soon. 

+40,700 new jobs were created in Canada created in Feb 2024, exceeding both the previous month’s gain of +37,300 and the expected +20,000. The unemployment rate in Canada edged up to 5.8% as expected,0.2% higher than January’s 5.7%. The Labour Force Participation Rate in Canada stayed steady at 65.3%. Reaction in the USDCAD was muted.

China’s consumer prices rose +0.7% year-over-year in Feb 2024, surpassing the expected +0.3% and bouncing from January’s significant -0.8% decline (the most pronounced in over fourteen years). This rebound, primarily fueled by strong spending during the Lunar New Year holiday, marked the first instance of consumer inflation since August last year, reaching an 11-month peak. Excluding food and energy, the core CPI climbed by +1.2% year-over-year in February, the highest since January 2022. On a monthly basis, consumer prices rose by +1.0%, continuing a three-month upward trend and achieving the highest rate since January 2021.

The US Treasury Yield curve inversion narrowed to 0.42% as the US 2-year bond yield fell -0.02% to 4.48% while the 10-year yield remained at 4.09%. 

The US stock futures traded within a small range through the Asian and London trading hours on Friday.

The US stock market traded higher in the early New York session as the revised US NFP data showed that fewer jobs were created in January and December. However, risk sentiment started to weaken especially among the semiconductor sector, causing stocks to go lower. As a result, the S&P 500 fell -0.65% (high: +0.62%, low: -0.77%), the Dow Jones slipped -0.18% (high: +0.46%, low: -0.22%) while the Nasdaq decreased -1.53% (high: +0.65%, low: -1.65%).

The crypto market continued to trade around the new highs over the weekend with Bitcoin briefly touching the 70,000 level on Friday and Ether going above 4,000 on Friday.
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Headlines & Market Impact

Aramco sees China demand growing, eyes more investments

Notable Snippet: Saudi Aramco (2223.SE) Chief Executive Amin Nasser said on Sunday the oil giant was looking at further opportunities to invest in China, where he said oil demand was robust and growing.

State-owned Aramco has been ramping up its China presence in a string of deals in refining and petrochemicals, some of them with crude offtake agreements attached.

“So far we are in the early part of 2024, demand is healthy and growing in China,” Nasser said on a media call following the release of results that showed net profit falling 24.7% to $121.3 billion on lower oil prices.

Nasser said the country’s refineries were some of the most fully integrated and had the highest conversion rates and Aramco was currently looking at further opportunities for investment.

Nasser expected the global oil market to remain healthy throughout 2024.

“We expect it to be fairly robust, we are looking at growth of about 1.5 million barrels,” Nasser said.

Nasser put demand for 2024 at 104 million barrels a day as opposed to an average of 102.4 million barrels in 2023.

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Gulf oil giants Saudi Aramco, Adnoc set sights on lithium

Notable Snippet:  Saudi Arabia and the United Arab Emirates’ national oil companies plan to extract lithium from brine in their oilfields, in line with efforts to diversify their economies and profit from the shift to electric vehicles (EVs), three sources told Reuters.

Other oil companies, including Exxon Mobil (XOM.N) and Occidental Petroleum (OXY.N) plan to take advantage of emerging technologies to filter lithium from brine, as the world seeks to move away from fossil fuels.

Saudi Arabia, whose economy for decades has relied on oil, has spent billions on trying to turn itself into a hub for EVs as part of Saudi Crown Prince Mohammed bin Salman’s attempts to find alternative sources of wealth.

Three people familiar with the matter said Saudi Aramco (2222.SE) and Abu Dhabi National Oil Company (ADNOC) were in the very early stages of work to extract lithium, regarded as a critical mineral by many major economies because of its use in battery manufacture.

They declined to give detail on the type of direct lithium extraction (DLE) technology that would be used.

Aramco did not respond to a request for comment, Adnoc declined to comment. The three sources declined to be named because they were not authorised to speak publicly. DLE technology is in its infancy and its economics are far less certain than those of oil. But Saudi Arabia and the UAE can draw on expertise in handling oil brine and wastewater at oil production sites.

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Biden says he’ll ban TikTok if Congress passes bill, but he’s campaigning on it until then

Notable Snippet: Members of the House Select Committee on the Chinese Communist Party introduced a bill this week that would require ByteDance to divest TikTok or face a U.S. ban, following earlier federal and state-led efforts that never came to fruition. On Thursday, the committee voted 50-0 to send the bill to the House floor.  

During the State of the Union address Thursday evening, Biden’s campaign posted clips of the speech on TikTok, a sign that the president plans to stick with the app despite swirling concerns in Washington. But it’s a particularly convoluted matter for Biden because, should the bill pass the full House and the Senate, it would hit the president’s desk.

White House press secretary Karine Jean-Pierre told reporters on Thursday that, “This bill is important, we welcome this step.” She said the administration plans to “meet the American people where they are,” adding that, “It doesn’t mean that we’re not going to try to figure out how to protect our national security.”

Biden said on Friday that he will sign the bill if Congress passes it.

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Phan Vee Leung
CIO & Founder, TrackRecord