Market 01/18: Employment and industrial production data continue to push bond yields

Fed attitude update: may cut rates from Q3/2024

Fed Bostic:

• Fed's baseline plan is to only cut rates from Q3/2024, based on considerations of not cutting rates too early causing a wave of inflation to return from demand and price pressures.

  

Labor market: Initial jobless claims drop the most since Sep 2022

Initial jobless claims last week: +187,000, much lower than expected 207,000 and the lowest since Sep 2022.

• 4-week moving average dips slightly to 203,250 (vs 208,000 previous week).

• Continuing claims also down for 3 straight weeks: at 1.806 million, below expected 1.845 million.

→ Unemployment rate may remain low in coming months.

• …and this is also the second-lowest since May 1969 for initial jobless claims.

• Among states, New York records the sharpest drop (down over -17,000 on unadjusted data) after a significant increase last week.

=> If labor data remains strong, while core and services inflation persists, Fed likely to keep rates high longer than market expectations.

• However, good news for inflation: Average hourly earnings growth (green) continues to decline => wage growth pressure on prices will ease.

  • Retail sales (orange) start to rise again after slowdown phase.

Industrial production: Philadelphia Fed Jan manufacturing index drops more than expected

Philadelphia Fed manufacturing activity index continues to fall in Jan to -10.6 vs expected -7.0.

• This contraction has occurred in 18/20 recent months), → Warning of slowing manufacturing activity.

• New orders: -17.9 (vs -25.6 prior).

• Unfilled orders: -18.5 (vs -7.9 prior month).

• Inventories: -14.6 (vs -4.2 prior month).

• Average workweek: -0.9 (vs -5.0 prior month)

  => clear impact of declining labor demand in industry…. (including: the wage decline above + recent full-time job decline).

• Worryingly, the 6-month ahead expectations data also fell sharply from +12.6 to -4.

The downward trend continues for both purchase prices and selling prices:

• Purchase prices: +11.3 (compared to +25.1 that month)

• Selling prices: +6.3 (compared to +13.6 previous month)

However, businesses expect the price increase momentum to return within the next six months.

However, signs of weakness in the manufacturing sector are not yet sufficient to assess a broad economic recession and need to be combined with other indicators (such as the 2015-2016 period).

US Treasury yields continue to remain at high levels

Low unemployment data + sharp industrial production decline above (accompanied by yesterday's retail sales data) continue to push US Treasury yields higher today:

This is entirely unfavorable for the strained public debt situation in the US:

Housing market: New home starts decline while permits rise in December

• New home starts decline -4.3% MoM, reaching 1.46 million in December.

• Building permits rise +1.9% MoM, higher than expected.

  → Signs indicate that construction will trend upward in the future, as cooling mortgage rates will boost housing demand.

• On a seasonally adjusted annual rate (SAAR) basis, both new home starts and building permits are higher than the year-ago period.

• Single-family housing permits (single-family starts) have increased steadily throughout 2023, however new home starts declined sharply -8.6% MoM - the largest decline since July 2022.

Reasons for the increase in building permits:

• Most homeowners at this stage will not want to switch houses, so buyers will seek newly built houses to purchase. => This heightens builders' expectations of home sales.

• Builders' optimism about future sales also surges as a result.

TSMC ER Q4/2023: Earnings beat expectations thanks to AI wave

• Revenue: reached 19.6 billion USD, (down -2% YoY but higher than expected by 0.1 billion USD), mainly from growth in leading 3nm technology.

• Gross profit 53%, down -9% YoY.

• Earnings per share including reserve fund (EPADR): 1.44 USD (beat expectations by 0.05 USD).

• Revenue from 3nm and 5nm manufacturing technology accounted for 15% and 35% of total revenue, respectively.

Apple and Nvidia are TSMC's two most important customer partners.

• TSMC manufactures advanced processors that Apple uses in iPhone.

Some other news:

1. CEO Googe announces 6% workforce cut in 2024 to focus investments on the artificial intelligence sector.

   

2. NVIDIA's Insider Trading:

   • Mark Stevens - Nvidia's second-largest shareholder just sold 36,000 shares worth approximately 19.7 million USD.

   • Viet Hustler will have a separate article on NVIDIA after 1 year of AI explosion this weekend.

     

3. US - China plans direct financial talks in Beijing, including: financial stability, capital markets and terrorism financing, showing efforts to improve relations between the world's two largest economies.

   

4. Airstrikes in Yemen are causing chaos in the southern Red Sea area. Ships are increasingly unwilling to navigate through the southern Red Sea after three large cargo ships were attacked.

1. • The number of ships passing through the Suez Canal has dropped sharply 40%.

5. 2024 election update: Managers at Davos say “nothing to worry about” if Trump wins this year, expressing “confidence that the US will be fine if Trump returns to the White House”.

6. OpenAI announces first partnership with Arizona State University for at least 6 months. Specifically, the school will have full access to ChatGPT Enterprise and use it in courses, tutoring, research,…

7. Spirit Airlines is considering other options to address financial issues, after a federal court ruling blocked JetBlue Airways' acquisition of the airline.

   

8. New cancer diagnoses expected to reach record high this year - new data from the American Cancer Society

   • number of new cancer diagnoses in the US expected to reach 2 million in 2024

   • the alarming increase in cancer is among young people.