Making Sense

As Howard Marks says The most important thing is "Awareness of the pendulum'. The mood swings of the market resemble the movement of a pendulum. Although the mid point of the arc best describes the location of the pendulum "on average", it actually spends very little of its time there. In fact, it is the movement towards an extreme itself that supplies the energy for the swing back.  Investment markets follow a pendulum like swing - b/w euphoria and depression, between celebrating positive developments and obsessing over negative ones and thus between over priced and underpriced.  While we may not know what the futures holds but me must have a fair sense of where we are headed. I hope this blog has helped you navigate the course of the markets by identifying these pendulum type swings and through the analysis, has helped you get a sense of how the data is evolving. The Economic calendar was heavy with Top Tier Data.  BoJ raised the overnight call rate by 15 bps to 2...

 The Non-Farm payroll numbers came in at 303K, sharply higher compared to consensus expectations of 200K and +22K revision to the last 2 month figures. Average Hourly Earnings (AHE) rose 0.35% mom, hourly earnings grew at an average pace of 0.34% over the last 3 months. Yoy number grew 4.14% (prior 4.28% ), the decline in annual rates on Higher Base effects . The Labor Force increased by 469K driven by a 498K increase in employment level and reduction of 29K in Unemployment level. The Average Weekly Hours rose 34.40 from 34.30 in the prior month. The data follows release of above consensus ADP numbers and a lower level of Job Openings. The ISM Manufacturing print gave a strong beat but the Services PMI price subcomponent brought some welcome relief to the markets. The Jobless Claims data ticked slightly higher by 9K but Continuing Jobless Claims fell 19K.   After pricing in as much as 166bps of rate cuts into the start of the year, markets are now leaning towards the poss...

On the NFP Print, the headline print show total Non-Farm Employment rise by 353,000 for the month of January 2024. The January print follows upward revisions to both November and December numbers to the tune of +9000 and +117000. The payroll employment increased by an average of 255K for 2023. The U/R was steady at 3.70% over the last 3 months. The AHE rose 0.55% mom and 4.48% yoy , reversing the deceleration seen since Aug 2023. Under the hood, the change in Labor Force is to the tune of -175000 driven by a change of -144000 in Unemployment level and -31000 in Employment Level. The Labor Force has shrunk by 621000 over the previous 4 months. The average weekly hours have also reduced to 34.10 weekly hours. The average number of hours worked, hit its lowest level since 2010, barring the dip during Covid. The below graph is a good way to visualize the NFP data. This month’s data also had a lot of noise on account of benchmark revisions. It involves comparing the monthly employment...

"We may never know where we are going, but we'd better have a good idea of where we are" Friday saw the release of the much awaited NFP data print and along side the ISM Non Mfg PMI which is a survey based measure. An analysis of the NFP data should not only focus on the headline number but also various other details like revisions, participation rate, employment rate etc. On the surface reading, the numbers showed strength as can be seen in the table below:   NFP▲ UR (in %) AHE mom AHE yoy Nov-23 173,000 3.7 0.35% 3.96% Exp 1,70,000 3.8 0.29% 3.90% Dec-23 2,16,000 3.7 0.40% 4.10% The prior two months were revised lower by 71K with the Oct - Dec  average at 164,667 compared to Jul - Sep 3 month average of 221,000 which clearly points to a decelerating trend in Employment gains. The unemployment rate was steady at 3.70% due to a drop in Labor participation rate. Under the hood, the Civilian Labor Force declined by 676,000 and the number of employed people fell by 683,000. ...