The Labor Market & Housing Sector Signal Soft Landing, will Central Banks Hike to Far?
Here’s an overview for todays article:
Don't Get Sucked In: The Market Is Due for a Correction.
Central Banks Plan To Address Inflation With Rate Hikes.
Housing Is Weathering The Mortgage Rate Surge.
The Labor Market in 2023: A Look at Layoffs and Net Job Increase.
Let’s Dive In!
YouTube Channel: Wall St For Main St
Title: This Week In Charts Episode 93: Stocks Rally Too Much Ahead Of Next Fed Rate Hike This Week?
Link: https://www.youtube.com/watch?v=1CoyyE7ndXs
Here are the top takeaways:
The Federal Reserve is expected to raise interest rates by 25 basis points at its meeting on Wednesday. The market may be surprised if the Fed raises rates by 50 basis points, as this would be contrary to its usual practice of not surprising the market. There are signs that the rally in the stock market may be coming to an end, as evidenced by weakness in the transports and semiconductors.
Earnings reports from Apple, Google, and Amazon on Thursday could also provide some direction for the market.
One area of concern is the yield curve, which is beginning to show some divergence. The long bond is holding up better than the short end of the curve. If the two-year starts to roll over.
Homebuilders are starting to look top heavy. Energy stocks are under pressure, with crude oil falling below last week's low. The current state of the natural gas market is unsustainable and the prices are artificially low. The market is due for a correction, and investors should be aware of this before buying into the current hype.
While the current price may seem like a bargain, it is important to remember that the market is due for a correction. Those who are willing to take on the risk may be rewarded, but it is important to remember that the market could still drop significantly in the coming months.
Website: Wolf Street
Title: Back-to-Back Market Smackdowns Coming from the Fed and ECB. Could Be a Hoot
Link: https://wolfstreet.com/2023/01/28/back-to-back-market-smackdowns-coming-from-the-fed-and-ecb-could-be-a-hoot/
Here are the top takeaways:
The Federal Reserve, European Central Bank, and Bank of England are all set to raise interest rates in the coming days, but markets are pushing back against them.
The ECB is especially hawkish, with president Christine Lagarde warning markets that they need to revise their positions. Markets are still expecting the FED to pause on rate hikes sometime this year.
Inflation is still a primary concern for central banks around the world.
The FED is projected to hike policy rate above 5% in 2023. The dot plot from December meeting showed majority of participants projected 75 basis points of hikes in 2023. Wednesday's rate hike is expected to be 25 basis points, bringing upper end of target range to 4.75%.
The projection of 75bps in hikes for 2023 & then a pause in 2024, will depend on compelling evidence that core PCE price index is heading back to 2%.
Newsletter: Apricitas Economics
Title: Can The Housing Market Stabilize?
Link: https://www.apricitas.io/p/can-the-housing-market-stabilize
Here are the top takeaways:
Rising interest rates have hit the housing sector in the United States the hardest. Mortgage rates have surged to 20-year highs, affecting market and construction sentiment for single-family owner-occupied units.
Single-family housing starts have fallen nearly 35% from their 2021 highs. Real private fixed residential investment has dipped well below pre-pandemic levels. Housing prices have dipped, but the slowdown have not been as bad as expected.
With high rates of construction but also high mortgage rates. This has led to a slowdown in the market, but it is not yet clear how severe the impact will be.
Real private residential fixed investment has dropped 20% since the start of 2020. It has now reached its lowest level since the end of 2015, similar to early 2008 levels.
US construction sector employment is at a record high and wage growth in the industry has been robust despite the rise in interest rates.
The current scenario is ideal for a soft landing in the housing market and the big question is for how long this can hold with mortgage rates still elevated.
Newsletter: Sage Economics
Title: Quick Thoughts on Layoffs.
Link: https://basu.substack.com/p/quick-thoughts-on-layoffs
Here are the top takeaways:
Layoffs continue, as you may have seen. Amazon 18,000 jobs, Google 12,000 jobs, Facebook 11,000, Microsoft 10,000. Layoffs are happening in the non tech space as well. Hasbro is cutting 15% of its workforce, DOW is cutting 2,000 jobs and 3M is cutting 2,500 jobs.
The demand for labor in 2023 is still strong & anecdotal reports of layoffs should not change your opinion. When jobs figures are released, these are net jobs. So when a positive number is released, all job cuts are negated by the job increases.
1.4 million people have been laid off or discharged each month over the past year and a half. 51,000 combined layoffs at Amazon, Google, Facebook, and Microsoft represent 3-4% of the layoffs that happen each month.
The reason that firing has been outweighing hiring in the news cycle is because large companies are dropping workers while smaller companies are hiring workers. For now, the smaller companies are absorbing the losses of the larger companies.
Many economists are predicting recession in 2023, these signs are not from the tight labor market we see now.
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