To The Moon

The US economy added 336,000 NonFarm Payroll (NFP) jobs in September 2023, surpassing expectations of 117,000.

It is the “biggest” increase since January 2023 readings (see below).

It means US economy is:

• Recovering strongly from the pandemic-induced recession.

• And the labor market is still relatively tight.

The robust job report signals that the Fed will likely to hike its target rate further in order to “decelerate” [a] hiring and [b] overall economy, and tame inflation.

• Unemployment rate remained flat at 3.8%, unchanged from August.

• It is at a level not seen since February 2022.

• Wages, a closely watched supplementary indicator of how much leverage workers have, rose less than expected last month, rising 0.2% on a monthly basis and 4.2% YoY.

With the latest NFP data, does it mean inflationary pressures are building again, as Demand for goods & services outstrips Supply?

• Core consumer price index (CPI) came in at 4.3% YoY for August.

• This is core CPI at its “lowest” since 13 Oct 2021, many moons ago.

• Looking at above Core CPI (less food & energy), US inflation is falling slowly.

• US producer price index (PPI) for August 2023, rose to 1.6% YoY.

• This was a +100% gain from July 2023 PPI of +0.6%.

• A rising PPI means producers are receiving higher prices for their goods & services.

• That could lead to higher profits and increased economic activity, "good" for producers.

• However, if PPI rises too quickly, it can lead to [a] higher inflation and [b] reduced consumer purchasing power instead.

• The picture will be “clearer” when September PPI is released on Wed, 11 Oct 2023.

• Apart from hiking interest rates (to stem inflation), the Fed has been “quietly” exercising quantitative tightening (QT) since July 2022 (see below).

• Except for 2023’s mid March to April - quantitative easing (QE during US Banking debacle), the Fed has been trying to mop up liquidity in the market.

• The Fed is unlikely to stop reducing its $8 Trillion bond portfolio, despite recent sharp rise in bond yields and borrowing costs.

• In fact, it is looking to tighten monetary policy to slow down growth and inflation.

• The bond market volatility and liquidity are not at alarming levels; said the Fed officials.

• Fed officials (Loretta Mester, Austan Goolsbee, Mary Daly, Michael Barr) have taken to media socialization, explaining why they are not worried about the impact of higher interest rates.

And just like that, the latest CME FedWatch tool (as of 06 Oct) is encountering probability of an interest hike in coming November FOMC meeting.

• Probability of the Fed raising interest by 25 basis points to the range of 5.5% to 5.75, has risen to 21.1%, from 18.0% in September 2023, (see above).

• Will the probability of a hike continue to bubble up in the coming days and weeks?

How I See US Market Will React

Overall, the stock market may react negatively to the higher-than-expected NFP; especially in the immediate future.

Higher NFP implies:

1. Higher probability of monetary tightening

2. Higher borrowing costs for businesses and consumers.

Days of low interest and abundant liquidity provided by the Fed, are long over.

At the same time, US stock market may also face headwinds from:

1. Uncertainty over US government snowballing and ticking time bomb - debt ceiling.

2. Insufficient US government induced fiscal stimulus.

3. UAW strike into its 24th day is still negotiating with Big 3 car makers, without a deal insight.

4. External geopolitical affairs (see below).

• The “Israel attack by rebel Hamas” (see above) has already created a temporary dent in the stock market futures.

• The stock market will experience more volatility and corrections from now until year-end, as it continuously adjusts to [a] changing economic, [b] policy environment and [c] geopolitical development intra / inter America.

• Do you think US market will continue to consolidate this week?

• Do you think certain companies will be able to ride out the current storm based on their quarterly earnings results?

Please give a “LIKe”, “Share” and “Re-post” ok. Thanks. Rating is very important (to me).

Do consider “Follow me” and get firsthand read of my daily new post/s ok. Thanks.

@Daily_Discussion

@TigerPM

@TigerStars

@Tiger_SG

@TigerEvents