In the days ahead, markets will hear from a veritable procession of Fed speakers who, thanks to a robust NFP headline and an uncomfortably warm read on wage growth, will have an easier time pushing back against March rate-cut speculation.
“We wouldn’t want to make much of any one month, but the strength of the labor market, if that continues, would lessen my worry that the job market side of our mandate is deteriorating,” Austan Goolsbee told The Wall Street Journal late last week. (He also said the decline in hours worked could be interpreted as a sign the update “wasn’t as strong as that headline number suggested.”)
For her part, Michelle Bowman doesn’t believe cuts are warranted at this juncture. “In my view, we are not yet at that point,” she said, speaking hours after the jobs release. “Reducing our policy rate too soon could result in requiring further future policy rate increases,” she added.
Expect to hear more — a lot more — such banter this week, which’ll feature additional remarks from Goolsbee and Bowman as well as Barkin (three times), Bostic, Collins, Harker, Kashkari, Kugler and Logan.
On the data front in the US, the Fed’s Senior Loan Officer Opinion Survey will be eyed on Monday. Markets were briefly obsessed with the survey in 2023 following the regional banking turmoil. That obsession eventually faded, but given renewed concerns around some small- and mid-sized lenders triggered by New York Community Bancorp’s very bad day (and a very bad week for regional banks in general), the new vintage of the survey will perhaps garner more attention than it otherwise would’ve.
Recall that the January FOMC statement omitted a sentence affirming the strength and resilience of the US banking system. I can’t imagine the Committee was trying to tacitly convey something about a coming wave of CRE-driven loss provisions with that omission. They’re not that subtle (or clever), and even if they were, the SVB experience suggests they’d be the last to know. The Fed typically only recognizes land mines after somebody steps on one.
Rather, nearly a year on from SVB’s implosion, officials probably wanted to believe the storm’s over, or at least wanted markets to believe as much, particularly given that Jerome Powell was compelled, in part by bad press tied to an arbitrage opportunity for banks which emerged in December when rate-cut wagers pushed the rate on backstop funding below the rate the Fed pays on reserves, to pre-announce the end of new loans through the Bank Term Funding Program (as of the facility’s one-year anniversary in March).
Anyway, not to spoil the suspense but the new edition of the Fed loan officer poll probably won’t be a market-moving event. The November vintage suggested some improvement in credit conditions, but the survey still showed banks tightening standards for all manner of CRE loans.
Any incremental increase in the share of banks turning the screws would be notable, but hardly a game-changer because, again, conditions were already pretty tight. For what it’s worth, the series to watch are those illustrated above.
ISM services will get some attention too. ISM manufacturing turned in a big beat last week, suggesting America’s factory recession is nearly over — good news, except that it could mean higher prices.
Recall that the employment gauge in the ISM services release plummeted in December. Although the jobs report suggested leisure and hospitality payrolls were basically unchanged in January, some observers highlighted an ostensible disparity between NFP and the services-side ISM employment index, apples-to-oranges to be sure, but what can you do?
Frankly, I’m not sure that comparison was worth the time it took to draw it. I mention it only because some macro watchers will skip straight to the employment gauge when the ISM services update is released on Monday.
The data with the most market-moving potential in the US comes on February 9, with CPI revisions. There’s something absurd about the idea that revised data should somehow matter — are consumers going to feel any better about the high prices they paid last year if the revisions suggest those prices reflected a slower pace of gains than previously reported? — but it does. It matters for Fed officials, economists and traders, none of whom, I’d not-so-gently note, are affected even by 9% inflation in their daily lives.
That’s pretty much the long and the short of it in terms of the US calendar. Supply will be in focus via the threes/10s/30s series (and this is an opportunity for me to suggest the post-NFP rise in yields might’ve been in part an early auction concession), there’s an update on consumer credit and jobless claims will be watched for a third straight weekly increase.
Overseas, China will release CPI data for January. The figures will probably show the world’s second-largest economy spent a fourth month in deflation.
