MACROSTATISTICS FORMS EXPECTATIONS IN THE RIGHT CHANNEL

Alexander Ovchinnikov

Aug 30, 2023

According to the ADP institute, private companies in the US created the lowest number of jobs in August over the past five months — 177 thousand against the expected growth of 195 thousand and compared to the growth of 371 thousand in July. The data illustrate a labor market that is gradually cooling: many employers are not cutting jobs, but some are reducing hiring rates, while others are cutting working hours to reduce costs. The ADP report always precedes the labor market report for the economy as a whole, which will be published on Friday: growth rates are expected to decrease to 170 thousand against 187 thousand in July. The second preliminary estimate of US economic growth rates was also published: according to revised estimates, GDP in the second quarter grew by 2.1% y/y compared to the previous estimate of growth by 2.4%. The data more strongly reflect a slowdown in economic growth, which was previously confirmed by PMI indices for the manufacturing and services sectors, as well as leading indicators such as the LEI Conference Board. Nevertheless, 2.1% is still high and may not be a sufficient argument for the Fed to start easing monetary policy. Meanwhile, the markets assessed these reports quite definitively: after Powell's speech in Jackson Hole last Friday, the markets raised their estimates of the probability of another rate hike in November, today everything returned to normal. According to CME Group data, the probability of maintaining the rate in September is estimated at 90.5%, in November — 59%, and in December — 57%. Market reaction: a decrease in the dollar exchange rate, an increase in gold prices, and a decrease in treasury bond yields along the entire curve (10Y UST yield — 4.10%). Expecting a decrease in yields, we have been actively buying ETFs on long bonds for the last two days. It is clear that further reports will adjust both investor expectations and asset revaluation in the markets. Therefore, we wait.The first important report is on Friday, on the labor market.