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- This Week in Financial Markets: 1.7.2024
This Week in Financial Markets: 1.7.24
1. US Job Market: Strong, But Deteriorating
The US Unemployment Rate has now been below 4% for 23 straight months, the longest streak since the late 1960s. However, beneath the surface, the labor market is deteriorating quickly.
*Nonfarm Payrolls December 216K, Exp. 175K
Despite the strong headline NFP number, full-time workers plunged 1.5 million in ONE MONTH to lowest since February 2023. Meanwhile, part-time workers soared 762K to the highest on record.
So, part-time jobs have surged, but how significant was the losses in full-time jobs?
Worst MoM % Change in Full-Time Workers Since 2000:
Apr ‘20: -11.2%
Jan ‘09: -2.2%
Dec ‘08: -1.7%
Sep ‘00: -1.7%
Sep ‘09: -1.6%
Apr ‘04: -1.6%
Sep ‘05: -1.5%
This week’s print: -1.5%
2. Can’t Get Much Worse for Manufacturing
Only one industry reported growth in December per ISM Manufacturing PMI… the lowest since April 2009. This speaks to why we have seen such a slowdown in full-employment. However, it also shows the current health of manufacturing cannot get much worse. With Fed rate cut expectation having surged in recent months, a re-acceleration in the economy is seemingly under-priced here. This is especially interesting as a rebound higher in interest rates would be a headwind for the back-half of 2024. We see a near-term rebound in economic activity that only makes a more significant slowdown more likely.
3. Germany Is Not a Safe-Haven
Historically, if investors saw a slowdown in the USA on the horizon, Europe or China could act as an investment safe-haven. However, Europe is in even worse economic shape than the USA. Germany housing prices (in real terms, i.e inflation adjusted) have plunged lower over the past 12 months.
China’s slow recovery is weighing on Europe and so is energy-intensive investment. Following the spike in energy and electricity prices due to Russia’s invasion of Ukraine (and the sanctions that followed), Germany’s already-hurting manufacturing sector has been hit hard. Importantly, you would think German equities have been crushed lower this year. Nope! They are just off the highs. It is hard to see the bull case for European equities that are at the recent highs due to the recent bond rally when economic growth is so scarce.
The US seems to the ‘least dirty shirt’ in the laundry, but is it really attractive with everyone crowded into expensive big-tech names?
4. Commodity Safe-Haven?
Many commodities are among the cheapest and most shorted assets among the fast-money crowd coming into '24. We see far better risk/reward here in the coming 12 months. Unlike equities, many commodities faced a decade-long bear market from 2011-2020 and have meaningful upside if China, Europe, or US manufacturing see a pick-up in demand. Keep in mind, on the supply side, tensions in the middle-east are likely to push up costs (see re-routing from the Suez canal).