By Jeffrey Cohen US Advanced Computing Infrastructure, Inc. We had economic news released that indicates the US macroeconomic slowdown in June and July 2023 may be over, and we are firming.
Three quick datapoints: - Job growth of 187k jobs in August, after revised lows in June and July, announced today. - Oil prices are up, now WTI trading at $85/bbl. Gasoline was higher, peaking in Mid-August. After a gap down, we see it rising again. - Interest rates are up significantly across the 2-30 year yield curve today (in the past few hours). Other news that is interesting, but less compelling. - There was a reading from ISM today that suggests firming in manufacturing, but it is unclear. - Inflation estimate from the FRB Cleveland (NowCast) is higher than expected for August MoM at 0.8%, and gasoline prices could be the culprit. I also saw electricity consumption scream higher in August MoM, which is likely a combination of usage and rates. - The VIX, or volatility index, is lower today despite the mixed economic news. This is likely driven by the actual, historical price variance being lower these past few days, weeks and months. The risk premium on volatility is dropping...again. We are positioned short in this market, so we want to see a monster under the bed. However, a look at markets and data suggests a balanced day where we see economic strength forming in August, higher interest rates to match it, and energy prices rising to 'soak up' any extra consumer personal income. Why would interest rates rise with economic activity? That's because real interest rates are restrictively positive and if inflation expectations rise, rates must rise with them to compensate new bond investments. If interest rates and energy continue to rise, we could see a very unmerry Christmas.
1 Comment
Jeffrey Cohen
9/1/2023 11:14:54
I am on a chat with someone who sees inflation up, but not as much as 0.8% MoM. The 10-year UST is up 10 basis points, and the VIX CBOE index continues to trade lower, now at 13.25.
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