Animal Spirits Always Matter More Than Mechanical Level Of Interest Rates
The latest US employment data trumped job additions’ estimates (+339K NFP vs 195K est) while the unemployment rate rose to 3.7% (est 3.5%) from a prior 3.5%. Average hourly earnings rose 0.3% MoM which was in line with consensus expectations (wages rose 4.3% YoY vs 4.4% est).
BlackRock’s Wei Li had this to say:
As she mentioned, “We are in a world shaped by supply and labour shortage doesn’t seem to be easing.”
This is an emerging narrative in markets and among analysts – that the labour market has structurally changed and it’s not going to be simple for the Fed to engineer a recession via rate hikes given how strong labour markets are. This leads to some concluding that inflation is ‘stickier’ than what the Fed and investors are expecting.
This is crucial as we are leading up to the point where many traditional indicators are still suggesting that disinflation and recession is on the way (or already here).
Equity markets-wise, with the Tech melt-up, other non-tech equities are now starting to catch up.
High yield bond markets have been resilient, and ETFs like JNK have been pretty much basing out since October 22′. If any, this isn’t bearish at all.