If inflation won’t cool, jobs must

00:00:00: Investors are searching for relief in the tiny drop of rain right now as rising oil prices stick inflation and mounting debt to keep global bond yields under pressure.

00:00:10: So attention now turns to US official jobs data due today, where a soft report could give that most needed relief to investors and markets while its strong reports from the U S Today would do exact opposite increase stress.

00:00:24: Now one thing is clear for everyone I guess at this point for markets remain bullish, some things gotta give.

00:00:31: Ideally inflation otherwise

00:00:33: jobs.".

00:00:34: So welcome to Swiss Coats.

00:00:35: daily market talk is today Friday September fourth.

00:00:40: I'm Ipekios Karadishkaya.

00:00:42: we will dial into the US Jobs data today mainly and a possible market reaction.

00:00:50: Fed expectations and US dollar equity and bone mark is reaction.

00:00:54: But before we do, as always please keep in mind that opinions are my own.

00:01:09: It took a comment from the Fed's Christopher Waller to send short-term yields down and equities up yesterday in the US.

00:01:16: Waller said that he would choose not raise interest rates this month if IMC meeting, IF inflation continues progress toward Feds' two percent policy target.

00:01:27: The decision will be heavily influenced by August inflation data, he said.

00:01:32: Which is due next week.

00:01:33: Just that with the recent spike we see in energy prices there's a chance that the data says We need a rate hike to tame inflation in the US.

00:01:41: Because look U.S.

00:01:41: critters again up by nearly three percent this morning.

00:01:44: at the time I'm talking here and USDZ prices hit a record high level yesterday.

00:01:50: The war in the Middle East And the war on Ukraine continue At full speed.

00:01:54: Meanwhile extreme weather events due to climate changes push prices higher.

00:01:59: Overall, investors' focus clearly shifted from strong earnings announced earlier this summer to rising crude oil prices into this September, the latter boosted inflation expectations and the bond yields higher around the world.

00:02:13: Then obviously the exploding US and other developed markets' debt levels added fuel on fire especially hitting long-end of yield curves.

00:02:21: The uncertainties are on the Fed's independence whether the new Fed chair Kevin Walsh would do what he must to keep U.S market in a sweet inflation & jobs equilibrium or he would rather soothe the White House's nerves and wishes to lower their interest rates.

00:02:39: without having a funded reason to do so, also rub salt into the wand.

00:02:43: Global yields have been slightly lower in past two sessions driven thereby slight retreating oil prices.

00:02:49: but this morning crude oil is up again and global yields are coming under pressure And given that bringing oil price sustainably lower will take time.

00:02:57: if there's no rapid resolution in the Middle East nor in Ukraine All of best option for Federal Reserve Doves to return to market and pull the yields lower lower more significantly in the

00:03:09: U.S.,

00:03:10: especially is soft jobs data, and we will see what that data says today.

00:03:15: because remember!

00:03:16: The Federal Reserve Chair Kevin Worshe said In his Jackson Hall speech a week ago That US jobs market is stable but price pressures are rising.

00:03:25: That's calling for policy tightening.

00:03:27: Yes...that's a rate hike.

00:03:28: But following this same logic If u.s.

00:03:31: job data comes in weak We couldn't expect it.

00:03:34: The Fed could justify waiting more time before hiking the interest rates.

00:03:39: So today, U.S official jobs data is expected to print fifty eight thousand new non-farm job additions for August.

00:03:46: Last month, the jobs data had surprised with twenty three thousand job losses in the US during the month of July Remember?

00:03:54: And according to the latest BLS release the u.s economy printed a net increase Of three hundred sixteen thousand jobs from july.

00:04:13: That's not brilliant.

00:04:14: In fact, if we dive deeper while despite the use of session heuristic around payroll growth in the US.

00:04:20: The idea is that one monthly NFP graph falls below roughly fifty thousand job additions on a sustained basis say three to six months moving average.

00:04:33: So if you look at the numbers today, The last twelve month average is twenty six and a half thousand new non-farm jobs.

00:04:39: And in the last six months average it's just around forty four thousand new job additions.

00:04:44: In both cases we are below that fifty thousand number.

00:04:47: now.

00:04:48: We can argue today That the break even Job growth in DOS has fallen because U S population on labor force growth have slowed as part of due to aging off the population Parted due to immigration policies.

00:05:01: so As a result some are that the US economy may now need substantially fewer new jobs each month to keep unemployment stable than the old.

00:05:10: one hundred and one hundred fifty thousand rule of thumb for job additions on a monthly basis.

00:05:15: But still, the latest numbers look a bit weak especially when they're negative.

00:05:19: So reasoning is always the same.

00:05:21: if U.S Job Data comes in soft both in terms of job additions And ideally in terms wages growth as well because thats important for inflation then the Fed does could gain some more fields today, pulling yields and a dollar lower while supporting equity valuations.

00:05:37: We saw the impact of softening Fed expectations yesterday when Waller spoke right?

00:05:41: If however the US jobs data comes in strong today it is a possibility because over the past six months we have seen prints between one hundred seventy and one hundred eighty thousand job additions per month.

00:05:52: then market focus or fear will remain on inflation.

00:05:58: The yield is rising and that will weigh on equity valuations.

00:06:02: Meanwhile, next week's inflation data from the US might say last word.

00:06:06: As per the U.S.

00:06:11: dollar, the dollar's performance relative to other currencies obviously.

00:06:15: The Hockey Central Bank expectations elsewhere could prevent it from rallying too aggressively.

00:06:21: but looking at the expectation today, the Fed still has more room compared with others toward a more hawkish monetary policy, I'll look them say the European Central Bank, the Reserve Bank of Australia or even the Bank of Japan.

00:06:35: Not speaking of the latter, this week a BOJ board member suggested that every Bank Of Japan meeting from now should be live for potential rate hike and that The Bank Of japan should consider consecutive rate hikes to normalize its policy race in accordance with new inflationary reality.

00:06:55: Whether the bank will or could do it is to be seen.

00:06:58: but if the dollar yen's latest pullback isn't accompanied by swift Boj action The latest advance in the Japanese yen will melt like snow under the sun, as it has been the case over the past interventions remember.

00:07:13: Now zooming out what's certain is that rising energy prices don't impact all currencies or all industries and all sectors In a similar way.

00:07:21: obviously net energy exporters Like the US & Canada are obviously less vulnerable to higher energy prices than net energy importers like Europe.

00:07:31: They are vulnerable, but they're less vulnerable.

00:07:33: The energy-heavy footsie hundred index on the other hand emerges yet again as a smart diversification option versus socks six hundred index for example which is more cyclical than their US and UK peers hence more sensitive to energy prices an interest rate so they could like if energy prices were made high annuals keep pushing higher.

00:07:53: The U.S.

00:07:54: sectoral heavy indices On the otherhand are increasingly sensitive to rising barbarian costs we have been talking about in almost every day since a while now, there.

00:08:03: the massive AI spending left big technology companies with small or even negative free cash flow levels in hand as we saw in the latest earnings season obliging them to seek financing through stock and bond assurances.

00:08:17: But not all technology companies are suffering.

00:08:19: AI enablers on other hands amassed this free cash from Big Technology Companies and could have certain shield against rising borrowing costs at least short run.

00:08:29: but that's end of the day, the fact that these AI enablers' clients are facing higher borrowing costs themselves and eventually they could slow spending is a mounting risk for the AI enabblers like NVIDIA.

00:08:42: So there's no magic resolution.

00:08:44: what would really help investors regain their mojo today is software yields!

00:08:49: For that we ideally need inflation and pressures soften, ideally with softer career prices.

00:08:54: If not soft jobs would do too even if that's the cure nobody wants!

00:08:59: So this is all for this week.

00:09:01: I'm Ipeco Skardishkaya And thank you for joining me.

00:09:03: Thank you to all your beautiful and supportive comments.

00:09:08: This episode of Market Talk has been helpful and it's been insightful to you, so please do not hesitate to leave your comments.

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00:09:37: So I will meet again next week, until then good day trading.

00:09:42: have a lovely

00:09:58: weekend!