The geopolitical crisis of the past month has changed the global economic roadmap ahead. Russia’s invasion of Ukraine has disrupted flows of commodities and driven up prices stoking already high inflation. As a result…
Tom Keene points out “We are not focused on payrolls…” (1)
March 4, 2022 was the release of the jobs report for February. The estimate for new jobs is for 421k, and a 3.9% unemployment rate.
Priya Misra, TD
Tom Keene of Bloomberg said in 1930 FDR went to the Fed in the depth of the depression and said “try something.” (1)
Priya Misra responded, the “Fed is facing a complex situation with inflation rising, and commodity prices potentially hurting the economy. They need to try something while avoiding forcing the economy into recession.”
“It’s a delicate time…” injected Lisa Abramowicz.
“Markets are on the move on news from Europe.”
Overnight Russia attacked and shelled the largest nuclear power plant in Europe, stoking memories of Chernobyl.
Jens Stoltenberg of NATO said conditions in Ukraine are likely to worsen in the next few days. (1)
The price of Brent crude oil rose to $115/bbl.
Jon Ferro of Bloomberg shares, “European banks have lost a quarter of their value in the past week”.
Abramowicz adds, “The situation in Europe looks far more like stagflation than the US”.
JP Morgan warns the Russian economy is headed for a collapse similar to the one it suffered in 1998 and led to the default on its debt. (2) That crisis led to chaos in international debt markets. Adding to this situation the value of the Russian ruble has plummeted in value, western governments have imposed sanctions and seized Russian assets, companies have divested from Russian investments, and investments in Russian companies stopped trading and have been dumped. The reality is any result in Ukraine is irrelevant… the damage has been done. News reports from Finland have reported trains full of Russian citizens leaving Leningrad for Finland. This loss of human capital could be crippling in the long run.
There is a huge fog that is blanketing future economic outlooks.
Chair Powell at Thursday’s testimony at US Senate said, “We expect inflation to peak in the next few months and start to decline. If inflation does not behave as we expect, we are prepared to raise rates by more than 25bp in one or more meetings.”
Randy Krozner, University Chicago, former fed official
Abramowicz asked Krozner, “is the Fed moving too fast or too slowly?” (1)
Krozner responds, “The Fed needs to be moving. Time will tell if they moved too slowly… The Headline jobs number is not key, Fed knows it’s a strong labor market. The key is inflation.”
At 8:30am on March 4, 2022 the jobs report was released…
678K jobs restored or created in February
Unemployment falls to 3.8%, from 4% in January
Avg hourly earnings were flat for month, it was estimated to rise .5%
Wages were up 5.1% year over year
Michael McKee of Bloomberg injects we are “Not seeing wage price spiral.”
Labor force participation rate rose to 62.3%, showing people moving back into the work force. The labor force rose by over 300k people.
Tom Keene pronounces it is a “Very constructive report. More people coming into labor force is good.”
Jeff Rosenberg, Blackrock
Rosenberg states, “This puts investors in a difficult position. They have a difficult time disentangling prices and growth. The shock to commodities makes this rise in prices more durable.” (1)
Keene mourns, there is a “Rolling tape to tape of stress.”
Following the Jobs Report the US dollar climbs to highest level since 2020. Euro falls on war in Ukraine. This will likely impact inflation and that is a much more important data point for the Fed.
On Thursday, March 10th CPI comes out…
On the Jobs Report the Euro dramatically weakened. “Traders are comparing forecast for the economy in Europe vs strength of US economy based on a strong jobs report.” explains Michael McKee. Reports of a collapse of the Russian economy could be negative in terms of long-term disruptions on commodity flows, especially to Europe.
Ira jersey, of Bloomberg Intelligence explained “We are pricing bonds for stagflation… slow growth, faster inflation.”
Rick Rieder, Blackrock
Rieder sums up the morning, “The payroll report was not that surprising. I was surprised to see the wage number not increasing considering what we hear from companies.” (1)
He continues, “How do you tighten policy when commodities that are rising are not really affected by a rise in rates? The Fed has to be really careful about how they raise rates.”
Rieder adds, “Food is starting to rise along with energy.” This broadens the inflationary pressure.
Wheat is at a 14 year high, rising 60% in the past month. Russia and Ukraine have typically supplied 25% of global wheat exports. (1) Interruption in those shipments have dramatically driven up prices.
Ferro concludes, “On March 10th CPI is released… this is a much bigger issue for Fed.”
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