You know it’s a quiet week when a small miss in weekly jobless claims (231k vs 212k) was enough to propel all major asset classes to move higher in unison. Against the Fed’s recent pivot to a focus on labour weakness, markets are certainly taking the message to heart and are scouring every little hint of a job market slowdown to revigorate its rate cutting hopes. As we have been mentioning, the current asymmetric risk-reward setup (Fed ignoring high inflation, looking for job slowdown) should be supportive of risk assets in general, which is exactly what we saw with equites, bond prices, and even BTC all rallying in unison following the release of the claims data.
Looking a bit deeper in the recent labour data, while a 175k monthly NFP gain is still relatively healthy, and an unemployment rate of 3.9% is still low, some cracks are starting to show underneath the facade with alternative labour measurements. Powell himself had specifically mentioned falling hiring rates and weaker employment surveys in his Q&A as signs of weakening labour demand. Furthermore, other sub-component measures such as rising permanent job losses, falling quit rates, reduction in hiring plans and widening ‘jobs hard to get’ ratios suggest that the US economy might be heading into a more pronounced labour slowdown in the 2H of the year, just as the pandemic-era excess savings have been depleted as we pointed out earlier this week.
Next week should be more active once again with CPI data coming back in the fold and offering the first significant challenge to the recent goldilocks narrative. Have a good weekend everyone!
