Morning Roundup

By Mark Masterson on January 6, 2023

Good morning,

Below are the news items moving markets today

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Executive Summary:

Quick note to end the week ahead of big jobs data.

Unfornately – I will have this note out prior to the data as I have early meetings.  No doubt, the jobs data will move markets.

One thing is clear as we start 2023 – the Fed will remain hawkish for a time, keeping rates elevated through 2023.  That should slow the economy, likely tilt the US into recession, and reduce the inflationary pressures.

The latest round of Fedspeak from yesterday:

• Fedspeak picking up after a lull following the December FOMC meeting, but little change from the major themes.
• Outgoing KC Fed President George (nonvoter) supported the “higher for longer” mantra, telling CNBC today she sees the Fed funds rate topping out above 5% and remaining there until there is substantial evidence of inflation coming down, which could stretch into 2024.
•  Elsewhere, Atlanta Fed President Bostic (nonvoter) told a conference that the Fed remains determined to bring inflation back down toward the 2% goal, arguing there is still much work to do despite recent promising signs (Reuters).
• St. Louis Fed President Bullard (nonvoter) was somewhat more optimistic, noting in a presentation that monetary policy is not yet sufficiently restrictive, but getting closer.
• He added that 2023 may end up being a disinflationary year.
• Comments follow Minneapolis Fed’s Kashkari (2023 voter) arguing yesterday rates could rise to ~5.4% before the Fed pauses.

The yield curve remains quite inverted – a strong signal a recession is on the horizon, or on our doorstep.

Interesting chart from Tavi Costa showing how much of the yield curve is inverted.  At 91% of the yield curve inverted, that is a strong signal indeed, and often has led to quite difficult market and economic environments.

1/6/22

I saw this article that highlights the dilemma for the consumer….It appears the car loan is the new mortgage….

• Car loan payments are becoming the new mortgage. The percentage of US consumers paying at least $1,000 a month for their cars accounted for almost 16% of consumers who financed a new car in Q4, up from 10.5% a year earlier: http://Edmunds.com

https://t.co/braWFl4RsF

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Articles of Interest:

• Economy:
  • Pace of US jobs growth set to have slowed again in December (FT)
  • Small US business owners dial back hiring intentions to lowest point in nearly two years (Bloomberg)
• Central banks:
  • New year of Fedspeak staying close to last year’s higher-for-longer theme (Bloomberg)
  • Falling inflation unlikely to deter ECB from more rate rises (FT)
• Corporate:
  • Tesla makes another round of price cuts on Model 3 and Y vehicles in China (Bloomberg)
  • Amazon job cuts suggest wave of tech layoffs could stretch into 2023 (Reuters)
• Washington:
  • McCarthy and GOP rebels reach tentative deal after failing 11th vote for speaker (Politico)
  • Some see House speakership chaos increasing risk of a debt-ceiling crisis later this year (The Hill)

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Charts of the day:

The Fed is marching on with QT – reducing its balance sheet.

This is being done quietly and behind the scenes, but it happening.

Last night the Fed reported its assets.  Total assets on the Federal Reserve’s balance sheet dropped by $458 billion since the peak in April, to $8.51 trillion, the lowest since October 6, 2021, according to the weekly balance sheet released today, with balances as of January 4.

Compared to a month ago (balance sheet released on December 8), total assets dropped by $75 billion.

Wolfstreet.com 1/6/23

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Quote of the day:

To improve is to change; to be perfect is to change often

Winston Churchill