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Rick Rieder

@RickRieder

Sep 6

A Thread on Today’s Payrolls Report:

There are some jobs reports over the years that are acutely followed by markets and others that are more of an afterthought. Today’s was the former, and the market reaction casts no doubt on the employment data’s importance. We can see the market's focus shifting from inflation to labor market data in the term-premia being priced around important data releases. It is clear that the labor market data has now overtaken inflation as the most important focus for both markets and the Federal Reserve.

While the recent labor market data is clearly softer, it is very far from a disastrous indicator of recession, hard-landing, or some pernicious foreshadowing of future consumer weakness. Rather, we continue to believe the job market is moderating from robust post-COVID demand. In fact, almost none of the recent increase in unemployment has been permanent job losers; rather, it was driven by temporary (weather-related) layoffs in August, which reversed this month, and a steady stream of new entrants.

So, while last month’s print famously triggered the Sahm rule, thus sending markets into a frenzy by hinting at the idea that a recession is nigh, we remain firmly in the camp that the data is that of a moderating economy, rather than a one headed towards recession. Even in today’s softer payrolls report, we see that job destruction is nowhere near the typical rate seen at the onset of recessionary periods.

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Rick Rieder

@RickRieder

Aug 23

In his conference speech today @federalreserve Chair Powell delivered a jumping off point for a shift in monetary policy that would start to bring the Fed Funds rate down at the next FOMC meeting in a couple of weeks.

Specifically, his description of a more balanced economic condition, which has largely normalized and is consistent with pre-Covid growth and inflation levels, sets the stage for such a change in policy.

The Fed has been waiting to gain more confidence in those parameters being in place, and today’s comments suggest that the time has come, as the Chair explicitly stated.

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Rick Rieder

@RickRieder

Aug 19

CIO Charts of the Week: We believe the recent return of chaotic markets likely has its origins in onerously tight policy, which has created increased vulnerability to crowded positioning and stretched valuations for risk.

With the benefit of hindsight, we would note that the first foreshadowing of fragility may have been SOFR spiking on July 2.

Shortly thereafter, the US Tech sector, which had risen to >20% above its 200d moving average, reversed dramatically on the largest ever 1-week small cap > tech outperformance!

Next, an earlier-than-expected Bank of Japan hike in policy rate set off a +5 standard deviation move in the Japanese Yen as investors rushed to close this popular carry trade.

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Rick Rieder

@RickRieder

Aug 14

Today’s CPI report confirms a trend that has been in place for a number of months: inflation moderating to a more normalized run rate level of price gains, and one that should continue to build confidence for the @federalreserve that this part of its mandate has been durably tamed.

Therefore, we think today’s and other recent data open the door for a September beginning of a rate cutting cycle.

Today’s core CPI reading of 0.17% month-over-month and 3.17% year-over-year was relatively close to the market’s expectations, and continues to depict a slowing of inflation, particularly in apparel and used cars and trucks.

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Rick Rieder

@RickRieder

Jul 12

A Deep Dive on Recent Data: While headline CPI data printed at -0.06% month-over-month and Core CPI printed at 0.06%, the real story of today’s CPI print lies in the services components. June represented another month of very low Core Services (ex-Shelter) readings, which has completely reversed the acceleration seen in the 1st quarter, and is now under the Fed’s 2% inflation target on a 3-month annualized basis 1/

Earlier this week @federalreserve Chair Powell delivered testimony before Congress that underscored the progress that’s been made in both bringing labor markets into better balance after the severe pandemic-era disruptions, and improvements achieved in taming the high inflation rates of that period as well- a narrative which today’s data continues to support. 2/

Looking at other inflation metrics, the Fed’s favored measure of inflation, core PCE, increased 0.08% in May, bringing the year-over-year figure for the measure to 2.57%, as of that month, while the @DallasFed’s trimmed mean measure of PCE inflation, printed at 2.79% year-over-year in May. 3/

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Rick Rieder

@RickRieder

Jul 8

In a market that’s become obsessed with election results and the question of who will take on the job of leading some of the largest developed market countries, such as the U.S., France, and the U.K., last Friday we had a day of respite to focus on the broader employment picture for the U.S.

What that #JobsReport showed us was that while political officials seem to be extremely focused on their own employment prospects, there is a very gradual, but persistent, moderation within the broader employment picture.

After a stronger than expected May report that seemed to contradict some slowing in other employment indicators, such as the JOLTS, ISM, Claims, and ADP data, this recent report depicted what appears to be a more consistent trend of slowing, while still decent, labor demand.

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