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US Jobs Report Brings Fed’s ‘Soft Land’ Scenario to Life By Reuters

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© Reuters. FILE PHOTO: The Federal Reserve Building in Washington on March 18, 2008. REUTERS/Jason Reid/File Photo

Written by Howard Schneider and Ann Saffer

NEW ORLEANS/SAN FRANCISCO (Reuters) – A jump in the workforce and moderation in wage growth suggests that the U.S. labor market is starting to move the way the Federal Reserve had hoped, to better balance supply and demand for workers and their help. in its fight against inflation.

After a year in which many key measures of the jobs market stalled at levels the US central bank feels are incompatible with stable prices, December employment data published on Friday provided a hint of relief.

Nearly 165 million people were either in or looking for jobs last month, a record number that showed a long overdue improvement in the labor supply. American companies added 223,000 jobs to the payroll to cap a year in which 4.5 million people were employed, a total that was only surpassed in the post-World War II era by 2021 by 6.7 million.

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At the same time, hourly wages — the price of labor — grew at the slowest annual pace in 16 months and fell by a full percentage point since the end of the first quarter of 2022. Average weekly earnings gained 3.1%, the slowest pace since May 2021.

Average hourly earnings growth: https://www.reuters.com/graphics/USA-FED/JOBS/myvmnzoaapr/chart.png

said Simona Mokota, chief economist at the company State Street (NYSE: Global Advisors).

“In this case, you can have your cake and eat it too,” she added, with earnings growing with no collapse in labor demand or large-scale layoffs.

Ideally, she said, that should allow the Fed to slow down and quickly pause interest rate hikes.

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Employment Recovery by Race: https://www.reuters.com/graphics/USA-ECONOMY/UNEMPLOYMENT/znvnexbyepl/chart.png

Traders took the report as evidence that the Fed’s work is nearing completion. US stocks rose and interest rate futures traders increased bets that the Federal Reserve will slow the pace of interest rate hikes further in the January-February 31st period. First meeting and finally stopping in the 5.00%-5.25% policy rate range that almost all US central bankers have indicated they believe will be needed to stop inflation.

“very, very high”

However, Fed policymakers were more sober about Friday’s data, suggesting that they are trapped in further rate hikes and will want to see more data confirming easing of price pressures before they stop tightening.

Atlanta Federal Reserve Chairman Raphael Bostick said Friday that he expects the policy rate this year to reach the range above 5.00% that he and his colleagues indicated last month and to stay there until “good” through 2024.

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This is a stark contrast to traders’ expectations for the policy rate, now in the 4.25%-4.50% range, to reach 4.75%-5.00% and then for the Fed to start cutting borrowing costs in the second half of this year.

“Today I would be comfortable with either 50 or 25 (a basis point increase),” Bostic told CNBC, referring to the Fed’s upcoming rate-setting decision. “If I start to hear signs that the labor market is starting to soften a little bit in terms of its tightness, I might move more towards the 25 basis point position,” he said, adding that at this point he doesn’t. You see wages as driving inflation.

Minutes of last month’s policy meeting, which were released this week, reflected the Fed’s concern about how the labor market will affect its fight against inflation, with officials concerned that core components of inflation “are likely to remain persistently high if the labor market remains extremely tight.”

The US unemployment rate fell to a pre-pandemic low of 3.5% in December.

Unemployment rate: https://www.reuters.com/graphics/USA-ECONOMY/UNEMPLOYMENT/gdpzymqoqvw/chart.png

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Although the employment data reflects only one month, it provided a welcome relief in some of those dynamics that have so badly weighed on officials’ minds as they try to continue to reduce inflation, which was running at the highest rate in 40 years in the middle of last year.

According to the Fed’s preferred measure, the personal consumption expenditures price index, inflation rose at an annual rate of 5.5% in November, down from earlier in 2022 but still more than double the central bank’s 2% target.

The Fed pulled out all the stops last year in its attempt to crush inflation, raising the benchmark interest rate from nearly zero in March to the current level in the fastest series of rate hikes in more than a generation.

More inflation data due next week will play into the Fed’s calculations about where it should go in the coming months, with the Labor Department’s Consumer Price Index expected to show that price pressures eased further in December. The annualized CPI rate is expected to drop to a 14-month low of 6.5% in December from 7.1% in the previous month, and the monthly rate is expected to remain unchanged, a surprising turnaround in a measure that was running at its highest rate since Early 80’s just six months ago.

“We’ve seen inflationary dynamics in the United States slow significantly,” Robin Brooks, chief economist at the Institute of International Finance, said Friday at the annual meeting of the American Economic Association (AEA) in New Orleans. “This is a very real development. And it has continued in one form or another.”

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“This is really good news.”

That may be true, but Fed officials — caught in their early reaction to rising inflation — are far from sounding victory bells.

“Recent data suggests that employment compensation growth has really begun to slow somewhat over the past year,” Fed Governor Lisa Cook said at the AEA meeting.

She said however, “Inflation remains very high, despite some encouraging signs recently, and therefore is a major concern.”

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Economic

We need to pay more attention to skewed economic signals

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The writer is chair of Queen’s College, Cambridge and advisor to Allianz and Gramercy

Inflation was the dominant economic and financial issue of 2022 for most countries around the world, especially for advanced economies that have a consequential impact on the global economy and markets.

The effects have been seen in declining living standards, increasing inequality, increasing borrowing costs, stock and bond market losses, and occasional financial mishaps (fortunately small and so far contained).

In this new year, recession, both actual and feared, has joined inflation in the driving seat of the global economy and is likely to replace it. It’s a development that makes the global economy and investment portfolios subject to a wide range of possible outcomes — something that a growing number of bond investors seem to be aware of more than their equity counterparts.

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International Monetary Fund iYou will likely review soon Her economic growth forecasts again, predicting that “a third of the world will be hit by recession this year”. What is particularly notable to me about these worsening global prospects is not only that the world’s three major economic regions – China, the European Union and the United States – are slowing down together, but also that this is happening for different reasons.

In China, a chaotic exit from the wrong Covid-19 policy is undermining demand and causing more supply disruptions. Such headwinds to domestic and global economic well-being will continue as long as China fails to improve the coverage and effectiveness of its vaccination efforts. The strength and sustainability of the subsequent recovery will also require that the country more vigorously renew a growth model that can no longer rely on greater globalization.

The European Union continues to deal with energy supply disruptions as the Russian invasion of Ukraine continues. Strengthening inventory management and reorientation of energy supplies is well advanced in many countries. However, it is not yet sufficient to lift immediate constraints on growth, let alone resolve long-term structural headwinds.

The United States has the least problematic view. The headwinds to growth are due to the Fed’s struggle to contain inflation after mischaracterizing rate increases as fleeting and then initially being too timid to adjust monetary policy.

The Fed’s shift to an aggressive front-load of interest rate hikes came too late to prevent the spread of inflation in the services sector and wages. As such, inflation is likely to remain stubborn at around 4 percent, be less sensitive to interest rate policies and expose the economy to greater risk for accidents from additional policy errors that undermine growth.

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The uncertainties facing each of these three economic areas suggest that analysts should be more careful in reassuring us that recessionary pressures will be “short and shallow”. They need to be open, if only to avoid repeating the mistake of prematurely dismissing inflation as transient.

This is especially important because these diverse drivers of recessionary risk make financial fragility more threatening and policy shifts more difficult, including potentially Japan. Get out of interest rate control Policy. The range of possible outcomes is extraordinarily large.

On the one hand, a better policy response, including improving the supply response and protecting the most vulnerable populations, can counteract the global economic slowdown and, in the case of the United States, avert a recession.

On the other hand, additional policy errors and market turmoil can lead to self-reinforcing vicious cycles with rising inflation and rising interest rates, weakening credit and compressed earnings, and stressing market performance.

Judging by market prices, more bond investors are better understanding this, including by refusing to follow the Fed’s interest rate guidance this year. Instead of a sustainable path to higher rates for 2023, they believe recessionary pressures will lead to cuts later this year. If true, government bonds would provide the yield and potential for badly missed portfolio risk mitigation in 2022.

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However, parts of the stock market is still weakly bearish pricing. Reconciling these different scenarios is more important than investors. Without better alignment within markets and with policy signals, the positive economic and financial outcomes we all desire will be no less likely. They will also be challenged by the risk of more unpleasant outcomes at a time of less economic and human resilience.

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Economic

Macro hedge funds end 2022 higher, investors say, while many others take big losses By Reuters

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© Reuters. FILE PHOTO: Traders work on the trading floor of the New York Stock Exchange (NYSE) in New York City, US, January 5, 2023. REUTERS/Andrew Kelly

By Svea Herbst Baylis

NEW YORK (Reuters) – Some hedge funds betting on macroeconomic trends have boasted of double and even triple-digit gains for 2022, while other high-profile companies that have long been on technology stocks have suffered heavy losses in volatile markets, investors said.

Rokos Capital, run by Chris Rokos and one of a handful of so-called global macro companies, gained 51% last year. Fund investors this week, who asked not to be identified, said Brevan Howard Asset Management, the company where Rokos once worked, posted a gain of 20.14% and Caxton Associates returned 16.73%.

Haider Capital Management’s Haider Jupiter Fund rose 193%, an investor said.

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Data from hedge fund research showed that many macro managers have avoided crumbling stock markets that have been rocked by rapid interest rate increases and geopolitical turmoil, including the war in Ukraine, to rank among the best performers in the hedge fund industry. The company’s macro index rose 14.2% while the general index of hedge funds fell 4.25%, its first loss since 2018.

Equity hedge funds, where the bulk of the industry’s roughly $3.7 trillion in assets are invested, fared worse with a loss of 10.4%, according to HFR data. And while that beat the broader stock market’s loss of 19.4%, some high-profile funds posted even bigger losses.

Tiger Global Management lost 56% while Whale Rock Capital Management ended the year with a 43% loss and Maverick Capital lost 23%. Coatue Management ended 2022 with a loss of 19%.

But not all companies that bet on technology stocks suffered. John Thaler JAT Capital finished the year with a 3.7% gain after fees after a 33% increase in 2021 and a 46% gain in 2020.

Sculptor Capital Management (NYSE::), where founder Dan Och is fighting the company’s current CEO in court over his salary increase, posted a 13% drop.

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David Einhorn’s Greenlight Capital, which bet that Elon Musk would be forced to buy Twitter, ended the year up 37% while Rick Sandler’s Eminence Capital rose 7%.

A number of so-called multi-manager companies where teams of portfolio managers bet on a variety of sectors also boast positive returns and have been able to deliver on their promise that hedge funds can deliver better returns in distressed markets.

Balyasny’s Atlas Fund (NYSE: Enhanced) gained 9.7%, while Point72 Asset Management gained 10%. Millennium Management gained 12% while Carlson Capital ended the year with a 7% gain.

Representatives for the companies either did not respond to requests for comment or declined to comment.

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German automakers point to easing supply chain problems

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Sales at BMW and Mercedes-Benz jumped in the final months of 2022 as the German premium auto brands indicated supply chain problems plaguing the industry were abating.

Automakers around the world have experienced parts shortages since the pandemic, especially semiconductors, leaving many of them with large fleets of incomplete vehicles that can’t be delivered to customers.

BMW and Mercedes each said their full-year vehicle deliveries fell last year by 4.8 percent and 1 percent, respectively, due to Suppliers Bottlenecks as well as lockdowns in China and the war in Ukraine.

But supply pressures eased in the last quarter of the year, as BMW recorded a 10.6 percent jump in sales, with 651,798 vehicles delivered, and Mercedes fulfilling 540,800 orders, up 17 percent from the same period in 2022.

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BMW He said the main effects of supply chain bottlenecks and continued lockdowns were felt in the first six months of the year, adding that “sales were steadily picking up in the second half.”

Mercedes boss Ula Kallenius told the Financial Times last week that the list of problems in the auto supply chain was declining, but added that long waits for cars would continue into 2023.

“One chip is enough to be vital [ . . .] Missing, and then you can’t finish the car, even if you have everything else.

Both brands recorded strong sales growth electric car. Mercedes, which last week announced a plan to build 10,000 charging docks, said EV shipments grew 124 percent to 117,800 last year compared with its predecessor.

Similarly, BMW reported strong growth in electric vehicle sales, with deliveries of fully electric vehicles doubling last year to 215,755.

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Analysts at Bank of America said that sales of electric vehicles, including hybrid cars, reached a historic peak last November, with 1.1 million units sold. They attributed this largely to the upcoming phase-out of customer subsidies in Germany.

Participate in Mercedes BMW and BMW prices held steady Tuesday morning as investors priced in an image of an improving showing.

Rolls-Royce, a subsidiary of BMW, announced Monday that sales have hit a 119-year record, driven by strong demand in the United States, its largest market.

The luxury brand has been largely unaffected by the semiconductor pressure, mainly because it makes relatively few compounds and therefore needs fewer chips.

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