Markets yesterday had a nervous undertone. What will be the impact of the longshoremen strike? Will inflationary pressures reignite given that wages are the largest cost of production? Will other unions/workers make similar demands? Will public service sector unions become as dogmatic as the longshoreman/UAW/Boeing strikers?
And then there is the Middle East. It is largely accepted a war premium is absent in the markets, specifically oil. Are these beliefs misplaced?
Tomorrow the all-inclusive BLS Employment report is released. The Federal Reserve has stated that monetary policy is primarily based upon jobs.
Analysts are expecting 150k and 125k increase in non-farm and private sector payrolls, a 4.2% unemployment rate, a 0.3% increase in hourly earnings, a 34.3 average workweek and a 62.7% labor participation rate.
The markets have discounted about 200 bps of interest rate cuts by the end of 2025. The Federal Reserve has made some definitive statements about inflation, believing a 2% rate can be at hand.
Several years ago, the Federal Reserve did not remotely consider OER (what you could rent you house for if it was indeed rental) would become an issue even with the proverbial handwriting was on the wall. The Committee is now projecting OER will remain a “significant factor” for several more years to come. OER is the largest contributor to the CPI.
Is the FOMC making a similar mistake about wage inflation? Treasuries staged a moderate selloff, partially the result of fears of higher labor costs, the result of a stronger than expected reading on the private sector ADP Employment Survey.
Last night the foreign markets were down. London was up 0.40%, Paris down 0.65% and Frankfurt down 0.41%. China was up 8.06% Japan up 1.97% and Hang Seng down 1.47%.
Futures are down 0.35% on monetary policy and Middle East concerns amplified by the dock strike. Oil is up about 3%. The 10-year is off 8/32 to yield 3.81%. China is expected to further increase fiscal stimulus with perhaps a $1.4 trillion “special debt offering” to “drastically increase government investment in public projects.”
