JOLTS, ADP and US Payrolls Pointing Downwards
Last week started with a fairly weak US JOLTS survey report which serves as a trustful leading indicator for the US job market as it tends to drops well ahead of more lagging indicators of job health such as the unemployment rate or the average hourly earnings. Job openings, hires and separations, reflecting of both the demand and offer side of the job equation, and the three components of the survey, all pointed towards a weaker job market. Other indicators published conveyed a similar message starting with the ADP employment report on Wednesday which showed 177k jobs being added (vs. 200k expected), followed by Thursday’ jobless claims which although remaining low historically, started to creep higher and Friday’s August Non-Farm-Payrolls number which came at 187k (from 170k expected) with July and June numbers significantly revised lower. The unemployment rate also climbed from 3.5% to 3.8%.
With evidence building of a weaker economy, the stock market response was decisively bullish with bad news being good news as it was seen pushing the Fed into at least a pause.
During Friday’s otherwise quiet session, top winners were the Hang Seng and oil which both gained 2.5%, followed by more of the same, with energy and China Tech gaining 2% each. On the other side, on Friday, the long bond shed 2.2%, surprisingly unable to benefit from last Friday’s weaker than expected job report.
European equities underperformed as it becomes clearer by the day that that Europe and the US (and China to a large extent) face a very inflation and growth outlook with more inflation and less growth (see FT article overnight).
Wage inflation is more poignant In Europe as Europeans fight to preserve their purchasing power. Over the week end, French evening news echoed les “Restos du Coeur”, a caritative organisation providing free meals to French falling under the poverty line, saying it was in dire need of public subsidies or it would severely fall short of delivering on its mission. This is just another example of the heavy toll paid in particular by Europeans as a result of higher food and energy prices. Europe needs peace, not war or any of the multi-year (a quinquennial plan was recently proposed) multi-billion commitment made by the European Commission to support war instead of peace efforts. Another line was crossed last week after Ukrainian members of government called the Pope “pro-Russian” simply because he was advocating peace over war.
As the oil cartel gained traction with the USD60 Russian price cap increasingly failing to be effective (Ural sells at USD72 to anyone not feeling bound by the price cap and selling oil to Europe at a premium which is the ever-widening BRICS alliance), the price of oil rose sharply last week and more this morning, also supported by decisive action taken by the Chinese government to prop up its ailing economy.
Over the past week, the S&P500 rallied 2,6% (18,0% YTD) while the Nasdaq100 rallied 3,7% (41,8% YTD). The US small cap index rallied 3,7% (9,5% YTD). AAPL rallied 6,1% (45,8%, Z-score 2,3).
Cboe Volatility Index sold off by -16,5% (-39,6% YTD, Z-score -2,0) to 13,09.
The Eurostoxx50 gained 1,0% (16,2%), underperforming the S&P500 by-1,5%.
Diversified EM equities (VWO) gained 1,8% (5,1%), underperforming the S&P500 by -0,7%.
The Dollar DXY Index (UUP) measuring the USD performance vs. other G7 currencies gained 0,2% (4,5%) while the MSCI EM currency index (measuring the performance of EM currencies vs. the USD) gained 0,1% (1,2%).
10Y US Treasuries rallied -2bps (30bps) to 4,18%. 10Y Bunds dropped -1bps (-2bps) to 2,55%. 10Y Italian BTPs dropped -1bps (-48bps) to 4,24%, matching Bunds.
US High Yield (HY) Average Spread over Treasuries dropped -14bps (-103bps) to 3,66%. US Investment Grade Average OAS were unchnaged (-14bps) to 1,29%.
In European credit markets, EUR 5Y Senior Financial Spread dropped -4bps (-19bps) to 0,80%.
Gold gained 1,3% (6,7%) while Silver gained 0,2% (1,4%). Major Gold Mines (GDX) rallied 2,4% (1,5%).
Goldman Sachs Commodity Index gained 1,1% (-0,8%). WTI Crude rallied 6,9% (6,7%).
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Marc Bentin serves as Economic Advisor to Blue Lotus Management,
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