Redeye Macro Note: 'Losing Steam' - September / October Employment Report, Period of Distribution, War in Venezuela?
In this Redeye Macro Note - we dive into our September/October Employment Report, talk about distribution in the market and weakening internals, highlight what we'll cover tomorrow, and more...
Don Johnson (@DonMiami3), Chief Economist
Good Saturday evening MacroEdge Readers and Community,
This evening, we’re going to cover some of the latest developments of the past week. Volatility has crept higher again in the last few weeks, with some of the AI thematic getting whacked, and unemployment fears coming back into the equation after the September report was released on Thursday. The market rebounded a tad on Friday after NY Fed’s Williams brought the December rate cut back to a new guarantee, a sharp shift from Thursday and our Midweek Macro Note.
The additional rate cut may give some fuel to speculation in the very short-term and this trading week should see very light holiday volume, as well as a wind-down of the earnings season hype we saw largely wrap up with the Nvidia report the other day. Things are going to get quite interesting come Q1 for earnings again, as the data center/AI growth stories come into question, and we look at other risks entering the new year. On top of that, we’ve got private credit risks bubbling, valuations at their highest levels ever, and the left tail risks continue to fatten up. I’ve put myself on ‘Team Spitznagel’ for the time being in terms of where we’re at in the cycle… see his latest comments for more.
Overall, Bitcoin continues to lead equities - something I’ve harped on for the last 4 months - as we’ve transitioned to using the asset as our best real-time financial conditions index relative to other indicators.
Also the Administration is in a crisis of confidence right now as Americans sour on the economy, namely in the job loss component (covered below).
Holiday conditions and lack of data until the next FOMC meeting may provide some foam on the runway for additional speculation and retail inflows for the time being.
New Macro Indicators
We’re developing three new macro indicators to continue on the success we’ve built through our state-of-the-art indicators developed thus far.
Included in the next batch will be:
Data center construction & delay/cancellations
Hiring momentum indicator
Core consumer inflation rate
Portfolio Strategy Update - MIRP & GMSP
I have several updates for the GMSP coming and Six will have updates for MIRP tomorrow, that will be available in the Weekly Macro Note.
MIRP continues its strong performance with inception, up 14.693%, we will continue to excel during this period in the pause on *up and to the right* for the time being.
September / October Employment Report
While we’ve thrown it out there several times over the last few years, this cycle’s lag in both credit and employment relative to the hikes has been unprecedented. The fall data is once again shaping up somewhat similarly to 99/07 - though the lag time is more similar to the latter. Unemployment continues to tick higher, and we’re likely parked at a 4.5% U3 in October, with the potential for 4.7-4.9% to end the year if we see a pace of weakening similar to what we saw in October. Right now, the Fed’s expectation of 4.5% is probably on the low side, given the latest real-time data that we have.
UMich Expectations of Job Loss - Near Record High This Month for 18-34 Cohort
KC Fed LMCI through August - Cycle Low (to be expected)
U3 Unemployment Rate - New Cycle High in September (4.5 expectation in October)
Expected U3 print for October (4.5)
Total unemployment level - when do we stop calling this ‘normalization…’?
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