CORRECTION Friday, April 5, 2024
in my haste earlier, I left out a chart, apologies - I am so glad it's Friday
“Your focus determines your reality.” – Qui-Gon Jinn, Star Wars Episode I: The Phantom Menace ||
Hello everyone, and happy Friday! A shorter email today, had to be away from my desk for part of the morning – and no recording, sorry! I’ll make up for it on Monday! And since this one is short, I’ve made it open for everyone to read.
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IN THIS NEWSLETTER:
Bracing for more employment confusion
What yesterday’s jitters say about BTC narratives
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WHAT I’M WATCHING:
Bracing for more employment confusion
It’s jobs day! The US official employment data has become one of the most-anticipated releases for those obsessed with the path of US interest rates, as – in theory – a strong jobs market will keep spending, making it difficult to bring inflation down further. And if inflation doesn’t come down further, it will be difficult to justify rate cuts, especially given the recent emphasis from Fed officials on needing “more” confirmation.
Consensus estimates point to a slowdown in the rate of new jobs added, from 275,000 in February to 212,000 in March. But, it’s worth remembering that February’s figure was way ahead of the expected 198,000 as well as of January’s payroll increase of 229,000 – so, we could see a downward revision of February’s increase, making any March drop less startling. If indeed we get a drop.
Employment data out over the past couple of weeks suggest that the jobs market is still strong.
ADP private payrolls out earlier this week delivered a higher increase than expected – 184,000 vs 148,000 – and a higher increase than February’s jump of 155,000. Wage growth for job changers accelerated to 10% vs a year earlier.
(chart via Bloomberg)
And continuing jobless claims, a proxy for the number of labour force participants struggling to find work, dropped to the lowest level since October 2023.
(chart via Investing.com)
But initial jobless claims climbed to the highest since January. And March job cuts reached the highest level in a year, led by government positions. This is weird, since government jobs accounted for around 20% of February’s employment gain – generally not a good sign. Indeed, the last time the weight of government employment growth was this high was in 2008.
Whatever the numbers tell us today, we have to remember that the metrics only give a small glimpse at a blurry picture.
The jobs data is taken from two surveys: Household and Establishment. The unemployment rate – expected to hold steady at 3.9% – comes from the Household Survey, which asks households how many employed people they have. This has a much greater sampling error due to its small sample size (only around 60,000, vs the non-farm payroll Establishment Survey’s coverage of around 630,000 individual worksites). And it counts as “employed” people who work for themselves and who are on unpaid leave from their job – these are excluded from the reported payrolls figure. However, the Household Survey avoids the double-counting error of the Establishment Survey which tallies jobs rather than workers (and many people have more than one job).
You may remember that, last month, we had a small increase in the unemployment rate (from 3.7% to 3.9%) at the same time as an upside surprise on the number of jobs added. Understandably, analysts tended to focus on the one that best confirmed their expectations.
This is worth bearing in mind before reacting to what will probably be confusing numbers that yet again hint at conflicting trends.
What yesterday’s jitters say about BTC narratives
Something spooked the market yesterday.
After heading up in early trading, at around 16:00 UTC the S&P 500 turned and nosedived almost 2%.
(chart via TradingView)
Many at first attributed it to comments by Minneapolis Fed President Neel Kashkari who said the quiet part out loud: there may be no need for the US Federal Reserve to cut rates this year. But US yields barely moved.
(chart via TradingView)
And anyway, Kashkari doesn’t vote on the FOMC committee this year, so it didn’t really make sense that his comments could spook stock traders that much, especially if bond traders largely shrugged it off.
The oil price gives a better clue as to the trigger:
(chart via TradingView)
Yesterday afternoon, reports started circulating that Israel was preparing for Iran’s retaliation for the strike against its compound in Damascus earlier this week. This understandably ratchets up the geopolitical risk to a new level. But even so, there have been scares before and the stock market barely reacted.
Yesterday’s slump may be in part concern about an escalation of the conflict, and it could also be a reaction to the oil price move. In other words, it could be more about inflation and margin squeezes than about the possibility of war.
Gold, a typical risk “hedge”, showed some confusion, at first jumping and then dropping. We could be seeing some profit taking, given its strong recent run.
(chart via TradingView)
It’s on days like yesterday that BTC’s behaviour becomes especially telling. On the one hand, since it is in part a risk-on macro asset, you would expect it to drop along with stocks – I’ve often said before that any sharp correction in equities would probably also hit BTC. It didn’t yesterday.
On the other hand, BTC is also a risk-off asset, “digital gold”, a hedge against crazy monetary policy and currency turmoil.
Yesterday, a day in which both narratives (risk-on and risk-off) were impacting markets, BTC held pretty steady.
(chart via TradingView)
This is encouraging, and reminds investors of the importance of a diversity of narratives for a strong floor. Of course, that doesn’t mean BTC won’t drop from here. But if it does, it will find a higher floor.
ALSO:
The Bloomberg Soundbites newsletter today looks at the impact of podcasts on industry coverage, suggesting that in-depth chats with “friends” is not a great substitute for incisive pushback and neutral deep dives. This got me thinking about the crypto podcast scene: we have so many podcasts now, hosted by crypto insiders, aiming for a crypto-friendly audience, which feels too “easy”. Education is key to broadening understanding, and more discussion is good, but maybe we should be asking who we serve with so much repetition and so many “soft” sessions? Advertisers, I suppose. I would love to see a crypto-friendly critical show, that embraces debate and gives experts a chance to reach crypto skeptics. One that asks sharp questions, isn’t afraid to ruffle feathers, and can do both big-picture sweeps as well as small use-case investigation. Just sayin’.
The latest episode of the Goodfellows podcast from the Hoover Institution has some interesting ideas about possible solutions to and outcomes for the Middle East conflict, as well as sobering comments on Scotland’s slide toward authoritarianism.
DISCLAIMER: I never give trading ideas, and NOTHING I say is investment advice! I hold some BTC, ETH and a tiny amount of some smaller tokens, but they’re all long-term holdings – I don’t trade.
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HAVE A GREAT WEEKEND!
