Given the short holiday, we would like to offer bonus material - for free. We will start off by analyzing the labor market (fresh data was released today), and then transition to the big picture: the Business Cycle. We will finish it off with the normal Cross Asset Compass to serve as a positioning guide through these Uncharted territories.
Let’s dig in!
The labor market is key as it serves as guidance over the Fed’s next move. A tight labor market will encourage the Fed to tighten further.
And yes… today’s NFP numbers, although showing some deterioration, are not enough… the market is pricing a 25bps rate hike once again.
The labor market continues to be off (very tight), with an insufficient supply to meet a decreasing demand. This could lead to inflationary pressures.
There are 1.67 job openings for every unemployed person in the US, which is not common for a recession.
This aligns with our Business Cycle Model (and Uncharted view), which gives us that macroeconomic coincident indicators are still above equilibrium while leading indicators rolled over.
We expect the labor market to deteriorate further, causing the coincident indicators to roll over and confirm the Recession in late 2023.
So, the question is: how do we position ourselves for Armageddon? Do we have time to ride one final wave?
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