Statements from Fed members on interest rate policy
Fed Chair Powell's testimony session: could cut interest rates this year.
Fed is aware of the risks of keeping rates high for a long time and will try to mitigate that risk.
Kashkari: Fed could cut interest rates twice this year.
Mester:
Expected cuts to proceed gradually + Need more data to guard against mistake of cutting too early.
→ Overall, the market is relatively expecting the first cut to start around mid-June.
Labor report: Job cuts surge in February compared to same period in previous years (Challenger)
Initial jobless claims this week as forecast
Initial jobless claims: +217,000 (in line with estimates and previous week).
Continuing jobless claims: rise to 1.906 million, highest since November (estimate 1.88 million).
→ Workers are still taking longer to find new jobs.
Challenger: Job cuts in February surge compared to same period in previous years
Companies announced cuts of about -84,600 jobs in February, highest compared to same period in previous years since the global financial crisis.
February layoff announcements increase +8.8% YoY (> previous month -20%).
Sector Transportation records the strongest cuts.
Sector Finance records the lowest cuts.
Labor costs dip slightly while labor productivity trends upward. Specifically:
Q4 unit labor costs rise less than expected, at +0.4% (< expected +0.7%). → Good signal for inflation.
Labor productivity rises +3.2% YoY. → If this growth is maintained, it will create conditions for labor wage increases without causing inflation.
Read more: Is labor productivity the savior for soft-landing and inflation for the Fed (end of article)?
US trade deficit at highest level since April
Trade deficit (trade deficit): -67.4 billion USD (> forecast of only -63.5 billion USD) mainly due to high import growth. Specifically:
Imports: +1.1%=, highest in 1 year (mainly: durable goods and motor vehicles) | Exports: +0.1%.
FYI: Atlanta Fed's GDPNow forecast shows trade deficit will not significantly affect Q1/2024 GDP growth.
Market news: New York Community Bancorp successfully raises capital and cuts dividend to 1 cent.
New York Community Bancorp (NYCB) successfully raises capital:
announces capital increase +1 billion USD from fund group: Mnuchin's Liberty Strategic Capital, Hudson Bay Capital and Reverence Capital Partners.
NYCB stock surges after announcement.
NYCB appoints Joseph Otting, former Comptroller of the Currency, as new CEO after news NYCB recorded 7% deposit decline in the past month.
FYI: Mnuchin and Otting have collaborated similarly before: Mnuchin led a group of billionaires to acquire mortgage lender IndyMac (company failed after 2008 financial crisis). After converting the company to OneWest, he hired Otting as CEO.
In addition, NYCB just announced cutting dividend down to only 1 cent/share.
FYI: Normally, cutting dividend is not good news for stock price. However, for current NYCB, cutting dividend means commitment to increase reserve capital according to BASEL IV.
=> This positive move to stabilize depositors' sentiment helps NYCB stock price rise again.
Read more about moral hazard of the banking system (middle of the article).
ECB keeps interest rates unchanged, signals rate cuts in mid-year.
ECB interest rates held at 4% despite inflation approaching target.
However, ECB lowered inflation forecast for the next 2 years:
Inflation forecast this year: 2.3% (< 2.7% in December).
2025 inflation forecast: 2%.
Economic growth forecast: 0.6% for 2024 (previously: 0.8%).
Other news:
S&P 500 continues to hit new highs, reaching 5,155 (~ up +9% 2024) despite some large stocks like Apple (-9% YTD), Tesla (-28% YTD), Google (-4% YTD)… declining sharply.
Tesla falls out of the top 10 largest US companies after dropping 2.3% yesterday, pulling market cap down to 562.2 billion USD.
United Airlines expands international flights due to expectations of high demand.
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