San Francisco Federal Reserve Bank President Mary Daly predicted that the United States economy will “continue slowing,” adding that this was “necessary” in order to bring the inflation down to its target, the policymaker revealed in an interview with Wall Street Journal on Monday. The policymaker explained that the country’s overall inflation is registering a downward trend taking into account recent data, but emphasized that the Federal Reserve “shouldn’t declare victory based on one month of data” warning that moving away from increases of interest rates could “worsen the economy.” Daly stated that the policymakers will assess the incoming data on consumer prices in the country and will determine the rate of interest rate increase with the hike ranging between 25 to 50 basis points being on the table at the next policy meeting. NN: The FED is not done. And the sooner wall street accepts this fact the easier it will be for them.
Goldman Sachs to start cutting thousands of jobs midweek
Jan 9 (Reuters) – Goldman Sachs Group (GS.N) will start cutting thousands of jobs across the firm from Wednesday, two sources familiar with the move said, as it prepares for a tough economic environment. Just over 3,000 employees will be let go, one of the sources said, but the final number is yet to be determined. That scale of layoffs would be the largest since the 2008 financial crisis, one of the sources said. The sources could not be named as the information was not yet disclosed publicly. Goldman Sachs declined to comment. Bloomberg News reported on Sunday that Goldman would eliminate about 3,200 positions. Goldman had 49,100 employees at the end of the third quarter, after adding significant numbers of staff during the coronavirus pandemic. The layoffs are likely to affect most of the bank’s major divisions, but should centre on Goldman Sachs’ investment banking arm, one of the sources said. Wall Street banks have suffered a major slowdown in corporate dealmaking activity as a result of volatile global financial markets. NN: Sources tell me the layoff could be as many as 16,000 the most in the firms history. Take their numbers and its still a warning that something is very very wrong. All the Wall Street firms are announcing the most cuts at least since the2009 wipeout. They are preparing for something BIG an Bad and Ugly.
Oil Prices Climb As China Reopens Its Borders
Crude oil prices began the week with gains after China reopened its borders, spurring optimism that the country was indeed coming out of its Covid-related self-isolation. This optimism pushed both Brent crude and West Texas Intermediate up by more than a percentage point in morning Asian trade today, although both remained below $80 per barrel at the time of writing. “Crude oil prices recovered from the previous week’s losses as the economic reopening in China and less aggressive monetary tightening prospects from the Federal Reserve set a positive tone for demand recovery,” Reuters quoted a Phillip Future analyst as saying. Other analysts have been issuing bullish outlooks for the whole year in oil. “Within commodity sectors we like energy the best and suspect that oil prices are on track for another positive year, driven by production challenges and strategic opportunities in large oil-producing countries,” John LaForge, the head of global real asset strategy at Wells Fargo, told TheStreet. While China’s reopening continues to be the main bullish factor for oil, fears of recession remain the main bearish factor and there are good reasons for these fears, with the EU’s core inflation hitting a record high at the end of 2022, and the U.S. Fed continuing with its aggressive inflation-taming approach. If a recession indeed hits enough countries, oil prices could dip to $60 per barrel, according to energy economist Bernard Weinstein, who spoke to TheStreet. At the same time, however, OPEC+ is keeping its finger on the pulse of the oil market and stands ready to tweak production again to avoid this happening. Even so, the cartel said in its latest monthly oil market report it expected higher oil demand this year than last year. Oil prices began the new year with a slump as traders focused on China’s Covid developments and general recession worry. NN BlaskMask Blog:
Don’t Break Our the Champagne Just Yet
‘Markets are going to get rocked’ as Fed is likely to push rates higher,
Benchmark rate of 5.5% is minimum — the market now eyes a terminal rate of 5%.
The Federal Reserve is likely to raise interest rates more than the markets now expect, says Ricardo Reis, an economist at the London School of Economics. “Markets are going to get rocked,” Reis told MarketWatch on the sidelines of the American Economic Association annual meeting in New Orleans. “All the risks are on the upside. A rate of 5.5% is the minimum,” he added. Last month the Fed raised the top end of its benchmark rate range to 4.5%. The central bank penciled in a 5.25% terminal rate. Investors who trade in the fed-funds futures market now expect the Fed to stop raising when rates get to 5%. Reis thinks the central bank will ultimately move rates higher. The Fed is burned by failing to recognize the persistent upward move of inflation in 2021, he said. “So I think they are biased toward over-tightening,” he said. “Either legitimately or because they are worried about fixing their past mistake, there are going to be tighter than you think.” The economy is at a turning point and the Fed does face some “tough calls,” Reis said. The key going forward is the path of wages. Workers need to have their wages go up because their paychecks have not kept up with inflation. So the Fed is going to have to gauge if the rise in wages is too much, just right or too little, he said. If wages don’t rise much, inflation can quickly return to the Fed’s 2% target, he said. If wages rise in line with productivity, the Fed won’t have to raise too much and inflation will come down to 2% in a few years. This will be difficult because productivity is an economic variable that is hard to measure. If wages spike, this would probably cause companies to continue raising prices, kicking off a wage-price spiral, Reis warned. The Fed might overreact to the rise in wages, he said. There is a scenario where rates go up “much more,” Reis said. But there is a range — it could be “much much more” or “much more” or “just more.” Reis said that he was sympathetic to the idea that raising the unemployment rate to 5.5% was not a terrible outcome if it means a return to low inflation. The unemployment rate hit 3.5% in December. NN:The Fed is not happy. And when they are not happy they have the unique way to make the markets unhappy.
NY Fed says China’s COVID woes are pressuring supply chains
NEW YORK, Jan 6 (Reuters) – Declining world supply chain pressures are being challenged by new disruptions in China tied to the coronavirus pandemic, the New York Federal Reserve reported on Friday. The regional Fed bank’s December Global Supply Chain Pressure Index ticked down to 1.18 from November’s revised 1.23 reading. According to the report, supply chain pressures have been easing notably since the spring of last year and bottomed in September, and have since then been bouncing around in a tight range. In a blog posting accompanying the report, bank economists said “while supply chain disruptions have significantly diminished over the course of 2022, the reversion of the index toward a normal historical range has paused over the past three months,” adding that “our analysis attributes the recent pause largely to the pandemic in China amid an easing of ‘Zero COVID’ policies.” In contrast to much of the rest of the world, until recently China has been pursuing aggressive lockdown strategies to mitigate the spread of the virus. Given China’s large role in manufacturing, that approach has kept pressure on supply chains over recent months. Now, the easing of restrictions has been attended by a massive wave of coronavirus infections, which threaten to keep pressure on the ability to ship goods out of China. NN: we are watching this closely. Our conclusion at the present time is the new dominate variant the XBB 1.5 is contagions as hell.. But not life threatening to health people. Usually symptoms pass within 5 to 10 days. As the infected population skyrockets in China i expect market hysteria. And a incredible reopening in the next few months of the Chinese economy. This could be a great trading opportunity.
The Fed delivered a message to the stock market: Big rallies will prolong pain
A line from the minutes of the central bank’s December policy meeting released Wednesday afternoon was taken by analysts and economists as a warning to financial market participants that bets on a policy pivot in 2023 aren’t welcome. And, to the extent that equity rallies and other financial market developments loosen overall financial conditions, those wagers will only force the Fed’s policy-setting Federal Open Market Committee to prolong the pain necessary to bring down inflation. Here’s the line: “Participants noted that, because monetary policy worked importantly through financial markets, an unwarranted easing in financial conditions, especially if driven by a misperception by the public of the Committee’s reaction function, would complicate the Committee’s effort to restore price stability.” In plain English? “Translated from Fedspeak, the FOMC members do not like stock market rallies, since they fear it could result in potentially inflationary consumer spending,” said Louis Navellier, president and founder of Navellier & Associates, in a Thursday note. And what can the Fed do about it? “Said differently, if equities continue to rally on bad economic news, the Fed will need to push forward to an even higher terminal rate and unofficially add ‘weaker stocks’ to the mandate,” wrote Ian Lyngen and Benjamin Jeffery, rates strategist at BMO Capital Markets, in a Wednesday note. “The minutes revealed another deliberate effort to dissuade the market of the notion that the Fed ‘put’ will be triggered in 2023,” they wrote. Investors have talked of a figurative Fed put option since at least the October 1987 stock-market crash prompted the Alan Greenspan-led central bank to lower interest rates. An actual put option is a financial derivative that gives the holder the right but not the obligation to sell the underlying asset at a set level, known as the strike price, serving as an insurance policy against a market decline. “Embedded in this discussion is the question of how much downside in U.S. equities the [Federal Open Market Committee] is willing to weather in its effort to re-establish the forward price stability assumption — [Wednesday’s] official communiqué lowered the level in stocks at which investors will look for a Fed pivot,” the BMO strategists wrote. The minutes made clear that the “proverbial Fed put is officially dead and gone,” said Kent Engelke, chief economic strategist at Capitol Securities Management, in a Thursday note. Stocks had bounced off 2022 lows set in October heading into the Fed’s Dec. 13-14 policy meeting, but soon lost traction, losing ground into the end of the month as major indexes booked their worst yearly performance since 2008. Stocks ended higher after the release of the minutes on Wednesday, then slumped the next session. Stocks were soaring Friday, with the Dow Jones Industrial Average DJIA up more than 700 points, the S&P 500 SPX, 2% and Nasdaq Composite up over 300 points. The rally came after the December jobs report showed an unexpected slowdown in wage growth and the Institute for Supply Management’s services gauge slumped into contraction territory. NN: Bullshit! the employment report was nothing to celebrate. In reality the job market is hot Hot HOT. And wages are accelerating. Do not let statistical noise fool along with wall street spin fool you. The FED is not happy!
US job growth solid in December as unemployment falls to 3.5%
The U.S. economy maintained a strong pace of job growth in December, with the unemployment rate falling to 3.5%, but higher borrowing costs as the Federal Reserve fights inflation could see the labor market momentum slowing significantly by mid-year. Nonfarm payrolls increased 223,000 last month, the Labor Department said in its closely watched employment report on Friday. Data for November was revised lower to show 256,000 jobs added instead of 263,000 as previously reported. Economists polled by Reuters had forecast payrolls increasing by 200,000 jobs, with estimates ranging from 130,000 to 350,000. Monthly job growth is well above the pace needed to keep up with growth in the working age population. The unemployment rate dropped to 3.5% from 3.6% in November. The government revised the seasonally adjusted data for the household survey, from which the unemployment rate is derived, for the last five years. Average hourly earnings rose 0.3% after 0.4% in the prior month. That lowered the year-on-year increase in wages to 4.6% from 4.8% in November. Government data this week showed there were 10.458 million job openings at the end of November,
The labor market has remained strong, despite the Fed embarking last March on its fastest interest rate-hiking since the 1980s.
Last month’s hiring amounted to a substantial increase. All year, as inflation has surged and the Fed has imposed ever-higher borrowing rates, America’s labor market has defied skeptics, adding hundreds of thousands of jobs, month after month.
As employers have continued hiring, wage gains have followed. In November, average hourly pay jumped 5.1% compared with a year ago, a robust increase that could complicate the Fed’s efforts to curb inflation.
Interest-rate sensitive industries like housing and finance, and technology companies, including Twitter, Amazon and Meta, the parent of Facebook, have slashed jobs. However, airlines, hotels, restaurants and bars are desperate for workers as the leisure and hospitality industry continues to recover from the COVID-19 pandemic. Labor market resilience is underpinning the economy by sustaining consumer spending. But it raises the risk the Fed could lift its target interest rate above the 5.1% peak the U.S. central bank projected last month and keep it there for a while. The trend in employment growth, however, could slow significantly by mid-year as expensive credit weigh on consumer spending and ultimately business investment. The Fed last year raised its policy rate by 425 basis points from near zero to a 4.25%-4.50% range, the highest since late 2007. Last month, it projected at least an additional 75 basis points of hikes in borrowing costs by the end of 2023. NN: To be clear here, if you think the FED is done this report is a disaster. Clearly from a Fed perspective the economy is not slowing. Laid off people are finding work within a month and getting pay increases of 15% or more,
China And India Are Buying Up Russia’s Arctic Oil
Russia’s crude grades from the Arctic, which used to be sold in Europe before the EU embargo, are now heading East to the two biggest buyers of Russian oil since the invasion of Ukraine—China and India.
Russia’s grades from the Arctic – Arco, Arco/Novy Port, and Varandey – have been selling at deep discounts in China and India as the EU embargo and the G7 price cap have further pushed more Russian crude to customers in Asia that have not joined the Price Cap Coalition, according to trade data and sources cited by Reuters.
“All these Arctic crudes usually go to the EU but now they have to go elsewhere,” a Singapore-based trader told Reuters. India imported at the end of 2022 its first cargo of Varandey crude from the Timan-Pechora oilfields operated by Lukoil, per sources and vessel-tracking data from Refinitiv. Before the Russian invasion of Ukraine, India was a small marginal buyer of Russian crude oil. After Western buyers started shunning crude from Russia, India became a top destination for Russian oil exports alongside China. Russia overtook Iraq to become the single-largest oil supplier to India in November, as Indian refiners raced to stock up on Russian oil ahead of the December 5 price cap and associated bans on transportation services for Russia’s crude.
In China, independent refiners have seen their refining margins jump in recent weeks as they have been able to negotiate steeper discounts for their preferred Russian crude grade, ESPO, even if they buy it above the G7 price cap.
While China hasn’t joined the Price Cap Coalition, the fact that a price cap now exists gives the world’s top crude oil importer, as well as other buyers of Russian crude such as India, more bargaining power to negotiate steep discounts for the Russian crude even outside the price cap mechanism, analysts say. NN: So what did they accomplish bt these silly ass price caps? Absolutely nothing… Buy they got the headline……
Oil rebounds after biggest drop in decades at start of year
Oil prices fall nearly 5% on worry over global economy
NEW YORK, Jan 4 (Reuters) – Oil fell nearly 5% on Wednesday after slumping in the previous session, weighed down by demand concerns stemming from the state of the global economy and rising COVID cases in China. Brent futures fell $3.75 to $78.35 a barrel for a 4.6% loss by 1:02 a.m. EST (1802 GMT). U.S. crude dropped $3.57, or 4.6%, to $73.36. Both benchmarks also plunged more than 4% on Tuesday, with Brent posting its biggest daily decline in more than three months.
“The energy complex is furthering yesterday’s sharp decline in kicking this new year off on an extremely weak note,” said Jim Ritterbusch or Ritterbusch and Associates, who added that China’s COVID-19 cases were among the top drags on oil prices.
Data from China showed that while no new variant has been found there, the country has under-represented how many people have died in its recent rapidly spreading outbreak, World Health Organization officials said.