Vital Statistics:
| Last | Change | |
| S&P futures | 4,183 | -22.8 |
| Oil (WTI) | 68.91 | 0.07 |
| 10 year government bond yield | 1.59% | |
| 30 year fixed rate mortgage | 3.16% |
Stocks are lower this morning on overseas weakness. Bonds and MBS are flat.
The economy added 978,000 jobs last month, according to ADP. Leisure / hospitality added 440k of these jobs. Education and health were the next biggest category at 139k. Note that the Street is looking for about 650k jobs in tomorrow’s employment situation report.
Nonfarm productivity increased 5.4% in the first quarter as output increased 8.6% and hours worked increased 3%. Unit labor costs rose 1.7% as compensation increased 7.2% and productivity rose 5.4%. The increase in productivity should be considered bond-bullish because it will counteract inflationary pressures. Productivity issues were a big driver of 1970s inflation as US plants were aged and becoming inefficient, while union contracts had big automatic escalators.
Initial Jobless Claims fell to 385,000 last week. We are still pretty elevated relative to historical norms, but nowhere near where we were a few months ago. Outplacement firm Challenger and Gray reported companies announced 24,586 job cuts last month.
A DC Appeals Court rejected an appeal by landlords to resume evictions. The moratorium is supposed to expire at the end of June. Sure would be nice to see property rights again in the US.
The Biden Budget is out, and like most of these documents is an aspirational document not meant to be taken seriously. Of note however is their interest rate assumptions: that negative real interest rates will continue for the next 10 years. In other words, the budget envisions the 90-day T-bill rate to be below inflation through 2031. GDP is expected to stabilize around 1.8% per year and unemployment is going to find a level around 3.8%. The 10 year bond yield is expected to gradually rise to 2.8%.
I don’t know what the assumptions are behind that projection, however it definitely assumes that the sovereign debt bubble that global central banks have inflated will not burst. Bubbles generally do not work that way, and we have never seen a sovereign debt bubble before, at least none that I am aware of.
China has followed the model of rapidly-growing states (the US in the early 1900s, Japan in the mid-1900s) where rapid growth creates credit and real estate bubbles. These bubbles inevitably burst, and the country goes through a multi-decade deflationary episode. The US deflation episode lasted from the mid 1920s through the early 1950s. Japan is still in its episode which started in the 1990s. If China does see the same thing, it will try and export its way out of it, which will mean inflation will remain low as it floods world markets with cheap goods.
In the past, investors would judge the sentiment of global government debt using gold. The barbarous relic is no longer considered much of an indicator, however cryptocurrencies will be the new barometer. I suspect more and more money will own crypto as a hedge against government profligacy. Which is why the government wants to ban it under the guise of preventing criminality.
The Daily Tearsheet 