Friday, February 4, 2022

Morning Note: Yep, It's Time to Drain the Punchbowl

Well, we can scratch the notion (explored yesterday) that Omicron will do a number on the jobs number. At least that's the reading from this morning's "Employment Situation Report." 

The consensus was for 125k jobs added in January, but, particularly after ADP's report showing a 301k decline, expectations were all over the place. The actual number was +467k.

US equity futures took a notable hit initially, however, as I type (right at the open), the Dow's only off a titch, and the S&P is flat. We'll see where they are as I reach the end of this note.

The commentary featured on the Bloomberg terminal pretty much tells of robust jobs growth and heightened fears that this news pushes harder on the Fed to do more about inflation sooner. Hence the initial negative reaction in the pre-market session.

I appreciate economist Peter Boockvar's approach to the data. He does a nice job filtering it and thinking through the noise. Here's from his morning note:

"...the better headline number should be tempered with the decline in hours worked for the reasons stated. As such there is a lot of noise in the number and while rates are jumping in response, I don’t think this changes the path the Fed will go down in the coming months and that means ending QE and hiking rates 25 bps in March and again in May and then play it by ear from there."

I agree, the odds that the Fed will raise its benchmark rate more than .25% come March are nil. I.e., while the Fed is clearly under the gun to get in front of inflation, their intense fear of crashing asset markets makes for very low odds that they'll do more than what markets have presently priced in (if even that). Today's report merely confirms, for their purposes, that it's time to start draining the punchbowl. 

We'll dig further into the jobs numbers in this week's macro update.

While there are still a few markets shuttered for Lunar New Year, overall, Asian equities leaned green overnight. With all but 3 of the markets we track closing higher.

European equities are having to discount yesterday's commentary out of the ECB that essentially said, wait a sec, we may actually have to do something about inflation after all. All but one (Russia) of the bourses we follow are trading lower so far this morning.

US averages are mixed: Dow down 55 points (0.14%), SP500 up 0.12%, SP500 Equal Weight down 0.26%, Nasdaq 100 up 0.52%, Nasdaq Com up 0.57%, Russell 2000 down 0.77%. Among the main sectors: Healthcare, tech, utilities, staples, communications, REITs, industrials and materials are all lower to start the session. Financials, consumer discretionary (Amazon beat on earnings last night) and energy are the only green sectors thus far.

The VIX sits at 24.54, up 0.78%.

Oil futures are up 2.92%, gold's down 0.07%, silver's up 0.63%, copper futures are down 0.08% and the ag complex (DBA) is up 0.20%.

The 10-year treasury is down (yield up) and the dollar is up 0.31%.

Among our 39 core positions (excluding cash and short-term bond ETF), 21 -- led by MP (rare earth miner), energy stocks, uranium miners, solar stocks and carbon credits -- are in the green so far this morning. The 18 losers are led lower by AT&T, materials stocks, German equities, water and industrial stocks.

"...excessive debt accumulation, whether it be by the government, banks, corporations, or consumers, often poses greater systemic risks than it seems during a boom."
--Reinhart, Carmen M., Rogoff, Kenneth S.; This Time Is Different

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