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US Economic Growth Slows to 1.1% While Inflation Accelerates

This article from Bloomberg may be of interest to subscribers. Here is a section: 

The outlook depends largely on the resiliency of the job market. Low unemployment and persistent wage gains have so far allowed consumers to weather high inflation and keep spending.

The personal consumption expenditures price index grew at an 4.2% annualized pace in the January to March period. Excluding food and energy, the index rose 4.9%, faster than forecast and the most in a year. March data will be released Friday. Services inflation remained hot while prices of non-durable goods accelerated.

The inflation and consumer spending figures likely keep the Fed on track to raise interest rates by a quarter percentage point next week. First Republic Bank’s continuing struggles, however, do raise the possibility that the central bank could pause.



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The Fed's next move

Thanks to a subscriber for this report from UBS which may be of interest. Here is a section:  

Aggregate hours worked in the private sector declined in February and declined again in March. Last week we walked through why we estimate the labor market has come back into alignment over the course of the last year. We also note that for all the talk of labor hoarding, filings of initial claims for unemployment insurance over the last four weeks have run higher than all of 2019 and most of 2018. Layoff announcements have been running above the post-GFC pace. Clearly some employers are laying off.

In our economic baseline, we assume the labor market carves out a peak this summer, and we pencilled in the July employment report as the time we expect the first negative payroll print. We'll see. However, our empirical models are moving that way. In the recent compendium (on page 17 at this link) , a leading indicator model developed by UBS's Pierre Lafourcade noted that a rising share were in contraction (defined as having passed a cyclical peak), and the same for a broader set of employment indicators that reflect labor market conditions.

"Historically, once roughly 50% of all series contract, payrolls go negative (which is intuitive), but it's the leading indicator bucket that tells you when that is likely to happen (it shoots up from 40% to 80% of series contracting in just a few months). The upshot is that while private non-farm employment is still growing, an increasing share of the underlying dynamics is turning sour," he wrote in the compendium in late March.



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Re-Emerging Equities

Thanks to a subscriber for this report from AQR which may be of interest. Here is a section: 

However, lower risk in emerging markets isn’t just a China story. Fundamentals have also improved more broadly. Over the past 20 years, per capita GDP in emerging markets has roughly doubled as a share of developed markets (Exhibit 5, left side). Measures of external vulnerabilities have also improved from their periods of peak fragility in the 1980s and 1990s. Current account balances in emerging markets are now positive in aggregate, and measures of external debt sustainability (e.g., external debt as a percentage of exports) look much healthier (Exhibit 5, right side).

Bottom line: there are many reasons to believe that the relatively attractive valuations found in emerging markets represent a 5-10 year opportunity. In other words, the current expected premium is likely due to these markets being relatively underpriced, as opposed to representing compensation for assuming meaningfully greater portfolio risk.



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Is FedNow a CBDC?

This article from the CATO Institute may be of interest to subscribers. Here is a section: 

What is FedNow?
FedNow is an instant payments system—a sort of update to Fedwire and the Automated Clearinghouse (ACH). Individuals will not have direct access to FedNow, but they will have access to faster payments so long as their bank or credit union opts into the FedNow network. Although creating FedNow was not necessary to achieve faster payments, one big difference with FedNow will be that payments will no longer be held up on weekends, holidays, or after traditional business hours.
FedNow is Not a CBDC
Astute eyes will likely recognize that FedNow does vaguely resemble a wholesale CBDC. Where a wholesale CBDC would be restricted to financial institutions for use during interbank settlement, FedNow would also be restricted to financial institutions. The difference, however, lies in their design. Where a CBDC is a currency, FedNow is a payment rail. If we think of dollars and cents as water, then FedNow is the plumbing that gets those dollars and cents where they need to go. In contrast, a CBDC would involve replacing the water itself in this analogy.

Under the current system, interbank settlement is performed on the Federal Reserve’s payment rails, thus ultimately affecting retail banking customers’ settlement times. It’s for this reason that Federal Reserve Governor Michelle Bowman said, “My expectation is that FedNow addresses the issues that some have raised about the need for a CBDC.” This statement should not be misunderstood to say that FedNow will take CBDCs off the table, but it does show that the Federal Reserve itself sees FedNow and CBDCs as distinctly different.



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Financial repression and funding a green revolution

Thanks to a subscriber for this transcript of an interview with Russell Napier. Here is a section: 

So that’s where we are at the minute. I think they’re rushing round trying to do something piece-by-piece. I suspect that in the last-, since the blowout of gilt yields, I see a moving hand here, rather than someone playing whack-a-mole. I see a government, increasingly, that they’re somewhere in there, whether it’s in the treasury of somewhere else, that realises the direction of travel has to be financial repression. So, I think the best example of that in the UK is, I don’t know if he’s passed it yet, but Rishi Sunak was looked for the power to overhaul all our financial regulators to push that power into the hands of the prime minister. The question is why? As chancellor of the exchequer, this is not a power that he sought.

So, I think people are beginning to realise that, yes, you can go round and whack-a-mole, so it’s happening anyway, but there could come a time where we have to something more aggressive. For me, it’s pretty obvious what that aggressive is, which is forcing savings institutions to buy government bonds. That’s the core of a financial repression. We haven’t taken that giant leap yet, but I think since the crisis in the gilt market, there is evidence I think, that someone realises that that is where we might end up and they’re preparing to have to take that leap. To stress this is not a UK problem, it’s the entire developed world and actually, Japan might have to go first in terms of that major jump.



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Bitcoin, Not Ether, Builds Crypto Market Dominance Ahead of Ethereum's Shanghai Upgrade

This article from Coindesk may be of interest. Here is a section: 

Ether's dominance rate remains stagnant between 19% and 20%. That compares with a rise to 21% from 14% in the weeks before a software upgrade last September known as the Merge. That technological overhaul replaced Ethereum's at-the-time energy-intensive proof-of-work mechanism of verifying transactions with a proof-of-stake system and set the stage for Shanghai. Staking involves depositing coins in the blockchain to boost the network's security and verify transactions in return for rewards.

Investor caution in pricing ether ahead of Shanghai stems from several factors, including concerns tokens unlocked after the upgrade will flood the market and regulatory issues.

"The Shanghai upgrade will unlock over 18 million ether staked since late 2020. The market is worried that the unlocking may bring about a sell-off, causing uncertainty in the market," Griffin Ardern, a volatility trader at crypto asset-management firm Blofin, told CoinDesk.



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Blackstone Raises More Than $30 Billion for Property Fund

This article from Bloomberg may be of interest to subscribers. Here is a section: 

Blackstone Inc. has closed on its largest global property drawdown fund, targeting opportunistic deals across sectors such as rental housing, hospitality and data centers. 

The company secured $30.4 billion of total capital commitments for the fund, called Blackstone Real Estate Partners X, according to a statement Tuesday. Blackstone’s latest fund is the largest of that type, according to PitchBook data going back to 2002.

The real estate market has come under pressure over the past year due to a pullback across commercial-property lending, as borrowing costs skyrocketed. At the same time, the stocks of public real estate investment trusts have also suffered amid the uncertainty in the market and increasing concerns about certain property types such as offices. 

“Pullback with all forms of capital will create opportunities,” said Kathleen McCarthy, global co-head of Blackstone Real Estate. “We can use our capital and expertise to capitalize on the moment for our investors.”

Blackstone’s latest fundraising helps cement the private equity firm’s status as a powerhouse in the real estate market. Blackstone’s real estate business, which started in 1991, now has $326 billion of investor capital under management.



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Why a BRICS currency is a flawed idea

This article by Paul McNamara for the FT may be of interest. Here is a section: 

China’s dominance is underlined further by the fact that it is a key trade partner for the commodity exporters, which have industrial cycles that clearly track the ebb and flow of the Chinese credit cycle. And after the attack on Ukraine, China’s financial influence over isolated Russia has risen further.

It is obvious but Chinese strategic interests are not especially aligned with those of the other countries. One of China’s priorities is finding somewhere to park its external surpluses beyond the reach of the US Office of Foreign Assets Control and finding stores of value other than US Treasuries. While none of the other four Brics members can provide liquid assets, they can provide investment opportunities especially in raw materials. As with the Belt and Road Initiative, Chinese authorities prefer to have control in such matters.

Russia and the gulf energy exporters prefer to accumulate “rainy day” sovereign wealth funds away from the US. However, the alternative to the US is not a diversified group of growing countries, but essentially one country — China — with a vast thirst for energy and other raw materials.

So not only are there practical challenges in a common Brics currency. In seeking one to challenge US hegemony in foreign exchange, the non-Chinese members of countries of the group may just increase their dependence on Beijing.



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US Service Gauge Falls More Than Expected as Demand Moderates

This article from Bloomberg may be of interest. Here is a section: 

The group’s index of new orders at service providers dropped more than 10 points to a three-month low of 52.2. While still consistent with expansion, the scale of the drop suggests a significant slowing in the pace of bookings growth. The business activity measure, which mirrors the ISM’s factory production index, slipped to 55.4.

“There has been a pullback in the rate of growth for the services sector, attributed mainly to a cooling off in the new orders growth rate, an employment environment that varies by industry and continued improvements in capacity and logistics,” Anthony Nieves, chair of the ISM Services Business Survey Committee, said in a statement.



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Treasuries Reach Day's Highs After JOLTS Job Openings Slumps

This article from Bloomberg may be of interest. 

Treasury 10-year note futures spike to fresh session highs after February JOLTS job openings declined more than estimated with January revised lower. At the same time February factory orders missed estimates for headline and ex-transport readings. 

US 10-year yields flip to richer on the day into the move as 10-year futures top at 115-28, with around 60k 10-year note contracts changing hands over 3-minute period

Belly- and front-end-led gains steepen 2s10s, 5s30s spreads onto session wides, higher by 7bp and 4bp on the day

Fed-dated OIS for May meeting drops to around 15bp of additional hikes priced, giving up around 5bp of hike premium in the aftermath of the data



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