A significant piece of big data has emerged, which is quite important!
1. Employment cools down more than expected, US dollar plummets through support levels
On Friday evening, the United States released重磅 unemployment and employment data that greatly exceeded expectations, indicating that the US labor market has begun to cool down significantly.
Data from the US Department of Labor shows that the US unemployment rate for October rose to 3.9%, exceeding the market expectation of 3.8%. The number of non-farm jobs added in October was 150,000, lower than the expected 180,000. Among these, private sector employment was 99,000, significantly lower than the expected 145,000.
Additionally, data for the previous two months were substantially revised downwards. The change in employment for August was revised down by 62,000, from 227,000 to 165,000, and the number of jobs added in September was revised down by 39,000, from 336,000 to 297,000. After the adjustments, the total number of new jobs added in August and September was 101,000 less than previously reported.
Income was also affected, with data showing that the average weekly working hours decreased by 0.1 hours, from 34.4 to 34.3 hours, and wages increased by 0.2% month-on-month, lower than the expected 0.3%.
Canadian employment data, released simultaneously, showed an unemployment rate that rose to 5.7%, exceeding the expected 5.6% and the previous value of 5.5%. The number of new jobs added was 17,500, lower than the expected 25,000. Earlier, the eurozone's September unemployment rate rose to 6.5%, exceeding the market expectation of 6.4%.
It can be said that across the European and American regions, the job market is showing a trend of accelerating decline.
After the data release, US Treasury yields plummeted again, with the 10-year US Treasury yield falling to 4.5%. In just two days, the US Treasury yield wiped out nearly a month's worth of gains, and the US dollar subsequently plummeted, breaking through the upward trend line to around 105.Additionally, the prices of gold and metals have also increased, and products related to daily chemicals have experienced a rebound. However, how should we actually interpret this data?
2. Two sides of the same coin: Bulls and Bears
Recently, I came across an article stating that the US dollar has ended its interest rate hike cycle, and a rate cut cycle is imminent,预示着 the arrival of a bull market. This is because historically, rate cuts often favor the bulls in the market, especially when the market has already experienced a certain degree of decline.
The best example is from last October to July, which coincided with the decline in the US ten-year Treasury bond rates, during which the US stock market had the best gains, and the A-share market also saw decent increases, making this logic easy to understand. (There are differences in valuation levels)
However, we should also be aware that in 2008, the slide in interest rates marked the beginning of danger. The impact of falling interest rates on the economy is just as delayed as the impact of rising interest rates.
From the weak employment data, we not only see the prospects of declining inflation and interest rate cuts, but we should also recognize the reality of accelerating demand decline in Europe and America. As shown in the figure below, many times in the past, when interest rates ended their inversion, it was precisely when recession occurred.
At least, judging from the performance of domestic cultural goods in the evening, the market's views are not uniform and have shown divergence. Crude oil and cotton, the two commodities most closely related to macro demand, have actually fallen.
We must pay attention to this. We should not hold a bullish view just because we hold a long position, nor should we hold a bearish view just because we hold a short position. It is crucial to be realistic.
Any data has a bullish side and a bearish side. What we need to grasp is the main direction of the contradiction, or the main aspect of the main contradiction, rather than mistaking secondary contradictions for the main ones.
3. What's different?Many people compare the situation at the end of last year with the present, but in fact, they are vastly different.
Firstly, the valuation levels are not the same. In October last year, the U.S. stock market had already undergone a significant correction, with valuations generally at a low level. Now, after half a year of increases, it has essentially recovered a large part of the losses.
Secondly, the level of interest rates is different. At the end of last year, we were still in the process of raising interest rates, which attracted funds, whereas now interest rates have reached a high level.
Thirdly, the impacts are different. Although interest rates began to rise in March last year, the starting point was too low, beginning at 0%. Essentially, there was no impact before June. It was only after June, when the rate reached 2.5%, that it began to have a slight effect. By the end of the year, the economy was still quite healthy, and the main impact was on sentiment. The longer the duration of interest rates, the greater the impact on the economy.
Fourthly, the U.S. dollar is different. At the end of last year, after a round of correction, the dollar was relatively cheap. Coupled with the expectation of interest rate hikes, there was a recent influx into the U.S. Now the situation is different again, with the dollar starting to depreciate. The expected depreciation of the dollar will, in turn, drive capital outflows.
These four differences require us not to simply replicate the market conditions at the end of last year.
4. Long or short?
Some argue that before the end of the year is the off-season for commodities, mainly driven by expectations, and that dollar depreciation and interest rate cuts play a significant role in macroeconomic expectations. It is normal for prices to rise at this time, but this may only be building up for the next round of declines.
This is because recently, both Europe and the U.S. have seen an accelerated decline in demand, including falling PMI, rising unemployment rates, job losses, and wage decreases, etc.
I still believe that, just like the rise in interest rates, the decline in interest rates cannot produce an immediate effect, and the overall demand trend remains downward.The latest second-quarter GDP forecast released by the Atlanta Fed was a big surprise, with only a 1.2% growth rate, which is a stark contrast to the high growth of 4.9% in the third quarter. The Atlanta Fed explained that after the U.S. Census Bureau released construction spending data and the Institute for Supply Management released the manufacturing PMI report, the forecast for the growth rate of real personal consumption expenditure and the total growth rate of real private domestic investment in the fourth quarter decreased.
Of course, there is controversy about this.
Some also believe that inflation in the United States can decline as expected, and the prices of stocks and commodities will rise again, causing inflation to rebound, driving interest rates to rebound, and returning to volatility, eventually leading to a situation of stagflation.
This is also possible.
Looking at the financing plans of the U.S. government in the next few months, the U.S. Treasury plans to net issue $776 billion in U.S. Treasury bonds in the fourth quarter of 2023, and the Treasury plans to net issue $816 billion in U.S. Treasury bonds in the first quarter of 2024. The total bond issuance is still high, which may continue to force U.S. Treasury bond interest rates to rebound.
However, from another perspective, this also means that the U.S. government has enough funds for fiscal expenditure and may continue to support the economy. No matter how high the interest rates are, as long as the U.S. government's finances are sufficiently loose, they can offset the impact of high interest rates and delay the arrival of a recession.
If the current interest rates are still not enough to have a sustained and profound impact on demand, then the fiscal deficit in the fourth quarter may still be able to maintain a higher growth rate. But we should not forget that the Federal Reserve is still selling U.S. Treasury bonds.
In the end, whether expectations play a greater role or the reality of a weakening economy is more fierce, there is still doubt, and different people have different opinions.
Of course, for A-shares, it is quite beneficial. On the one hand, the narrowing interest rate spread attracts capital inflow, and the recent increase in inflows of northbound funds is a signal. On the other hand, sentiment still has a profound impact.
But the rise may be to make room for the fall, and do not have too high expectations for the future height.
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