Markets' Heightened Sensitivity to Inflation Data; A Gift to Fed as U.S. Hiring Cools

Markets' Heightened Sensitivity to Inflation Data; A Gift to Fed as U.S. Hiring Cools By James Christie

Good day. Investors haven't had it easy trying to get a handle on how the Federal Reserve views its progress tamping down inflation and what that means for interest rates, judging by how Treasury yields and stock futures have reacted to inflation data that is out of step with forecasts. Stock-market sensitivity to inflation news over the past year and the Treasury market's sensitivity to inflation and wage data has jumped far above historical levels, a Goldman Sachs economist says. Those findings come as key data this week will help investors gauge how the Fed is faring in its fight against inflation: consumer inflation figures come out on Thursday and producer price numbers on Friday. Those reports will follow the July jobs report, which indicated cooling in the labor market, a welcome development for bringing inflation down. Fed officials will take that into account along with additional hiring data for August and inflation readings for July and August in considering their next rate move at their meeting in September.

Now on to today's news and analysis.

Top News Buckle Up for Another Round of Inflation Data

Stock and bond markets have become far more sensitive to inflation data, reflecting the difficulty investors have had trying to navigate the Federal Reserve's interest-rate intentions .

Treasury yields and stock futures have had larger-than-normal reactions over the past year to inflation data that differs from forecasts, according to Spencer Hill, senior U.S. economist at Goldman Sachs.

Hill looked at how markets moved in the minutes surrounding data releases. Stock-market sensitivity to inflation news over the past year has soared to 12 times the historical norm, he found. The Treasury market's sensitivity to inflation and wage data has leapt to more than seven times the historical median.

Investors Bet That High Rates Will Linger U.S. Economy Slower Hiring This Summer Could Take Heat Off the Fed

Employers slowed the pace of hiring this summer, adding to signs the economy is gradually easing, which could reduce the urgency for the Federal Reserve to raise interest rates at its next meeting.

The U.S. economy added 187,000 jobs last month , a still solid figure nearly matching June's downwardly revised 185,000 gain, the Labor Department said Friday. Last year, the average monthly employment gain was 400,000.

America's Truckers, Cargo Pilots and Package Carriers Are Fed Up

Labor standoffs at companies critical to U.S. supply chains come on the heels of the Covid-19 pandemic, when demands on train operators, package carriers, and truckers surged to handle a deluge of business.

Trucker Yellow Files for Bankruptcy, Will Liquidate Teamsters Boss Calls Himself S.O.B., and He Wants Everyone to Know It Need to Hire Workers in a Hot Job Market? Allow Some Remote Work

Companies that allow at least one day of remote work each week increased staffing at nearly twice the rate in the year ended in May than those with full-time office requirements, according to an analysis of more than 3,600 companies.

Big Oil's Talent Crisis: High Salaries Are No Longer Enough Real-Estate Haven Turns Perilous With About $1 Trillion Coming Due

Apartment buildings, long considered a real-estate haven, are emerging as the next major trouble spot in the beleaguered commercial-property world. The sector's main problem isn't a lack of demand, it is interest rates.

Key Developments Around the World The Era of Ultracheap Stuff Is Under Threat

Asia, the world's factory floor and the source of much of the stuff Americans buy, is running into a big problem: Its young people, by and large, don't want to work in factories . Alarm bells are ringing at Western companies.

Rising Money Flows, Fueled by Record Migration, Prop Up Autocrats

Millions of migrants are sending home record amounts of cash that fund small businesses in Uganda and feed families from Ecuador to Nepal. But the remittances also provide critical support to autocratic regimes.

In Istanbul's Grand Bazaar, Demand for Gold and Dollars Soars

Turks are pouring money into foreign currency, gold, cryptocurrency, jewelry and other assets that they see as a safer bet than the Turkish lira , which has lost more than 80% of its value in the past five years.

Saudi Arabia Charts Solo Path on OPEC Policy

Saudi Arabia is increasingly driving an oil-production strategy to boost prices that is at odds with other members of OPEC, in a push to fund the kingdom's ambitious development projects.

How the U.S. Fumbled Niger's Coup and Gave Russia an Opening

An obscure personnel dispute within Niger's presidential guard has now become what appears to be a geopolitical win for Russia and its Wagner Group paramilitary company in their bid to flip Western allies.

Financial Regulation Roundup The West Sanctioned Russia's Billionaires. They Are Fighting Back.

The West sanctioned more than a hundred leading Russian businessmen and their families, hoping that they would prod Russian President Vladimir Putin to give up his expansionist plans. So far the strategy hasn't worked .

Crypto Heists Funneling Billions to North Korea Attract Scrutiny

Three Democratic senators are pressing the Biden administration to disclose more information about its efforts to counteract North Korea's dependence on stolen cryptocurrency to fund its nuclear program .

Israeli AI Startup Vesttoo Sparks a Global Insurance Scandal

A hot Israeli startup promised to use artificial intelligence to spread the risk of insurance policies. Now, Vesttoo is embroiled in scandal thanks to an alleged multibillion-dollar fraud involving faked letters of credit .

Forward Guidance Monday (all times ET)

8:30 a.m.: Fed's Bowman and Atlanta Fed's Bostic speak at Atlanta Fed's Fed Listens

10 a.m.: The Conference Board Employment Trends Index for July

12 p.m.: Virtual Q&A with Bank of England's Pill on cost of living and economic conditions

Tuesday

8:30 a.m.: Canada trade report for June; U.S. trade report for June; Richmond Fed President Tom Barkin speaks to Loudoun County Chamber of Commerce in Herndon, Va.

Research What Wall Street Is Saying About Friday's July Jobs Report Adam Hetts, global head of multi-asset, Janus Henderson Investors: "This report is good news and helps kick the can down the road, but it wouldn't be uncommon for non-farm payrolls to hold up until months after the start of a recession and wary investors should closely watch employment and corporate profits from here. It's too early to say that 'hard landing' should totally exit the conversation." Bill Adams, chief economist, Comerica Bank: "Odds are better than 50-50 that the Fed makes another quarter percentage point rate hike in the second half of 2023, most likely at the Fed's November 1 decision." Ron Temple, chief market strategist, Lazard: "The case for ending the rate hike cycle got stronger with today's job report. Strong, but slowing, job growth suggests the Fed is navigating the tightening cycle well. With inflation down from over 9% to 3% and unemployment near a 54-year low, this is undoubtedly a positive report for the economy overall."

-Hardika Singh

Commentary A Goldilocks Job Market Is in Sight

While U.S. job growth might still need to slow more to convince the Fed to ease up on rate increases, it might not need to slow much more , and the economy can probably handle more jobs than some people feared, Justin Lahart writes.

Basis Points Canada's jobless rate in July picked up for a third month running as hiring failed to keep pace with the country's rapid population growth. The economy lost 6,400 jobs last month, the second modest decline in the last three months and after roughly 290,000 jobs were created in the first six months of 2023, Statistics Canada said Friday. July's retreat, compared with a gain of 25,000 jobs economists expected, contributed to a 0.1 percentage point rise in the unemployment rate to 5.5%, the highest since January 2022 when it sat at 6.5%. (Dow Jones Newswires) Mexico's production of cars and light trucks rose 13% in July from the year-earlier month to 294,400 units, with exports up 31% at 275,000, statistics institute Inegi said. (DJN)

Fixed investment in Mexico rose 4.5% seasonally adjusted in May from April, with construction up 7.6% and machinery and equipment up 1.2%, statistics institute Inegi reports. Compared with the year-earlier month investment was up 15.1%. (DJN) China's foreign-exchange reserves rose for a second month in a row in July, boosted by higher asset prices, according to data released by the People's Bank of China on Monday. (DJN) China's Ministry of Commerce said Friday it would scrap tariffs on Australian-imported barley, the latest sign of improving ties between Beijing and Canberra. The ministry said it is no longer necessary to keep imposing antidumping and countervailing duties on the imports based on changes in the Chinese market. (DJN) Indonesia's economy expanded more than expected in the second quarter, mainly driven by growth in all business sectors, despite a global economic slowdown and declining prices for its leading export commodities. (DJN) The Reserve Bank of India is expected to leave the policy rate unchanged at 6.5% at its meeting this week, Moody's Analytics says in its weekly Asia Pacific Economic Preview. (DJN) Germany's industrial production fell more than expected in June, suggesting weak demand and adding to the likelihood of a slowdown in the eurozone economy ahead. (DJN) Feedback Loop

This newsletter is compiled by James Christie in San Francisco and Perry Cleveland-Peck in Barcelona.

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08-07-23 0715ET