Halyard’s Weekly Wrap – 3/1/24 – Friday’s weak data and Fed speak (ad nauseam) drives drop in yields
This week proved disappointing in that each day was jammed with economic data and a parade of Fed speakers and the market barely budged. After last week’s range-bound trading we felt certain that interest rates would break out of their recent band. The best that traders could manage was a rally in the 2-year note taking the yield-to-maturity of that issue down to 4.53%, the lowest yield in nearly three weeks.
By last Friday investors had concluded that a Fed rate cut was off the table for March and the Fed speakers this week confirmed that. Curiously though, nearly every speaker confirmed that they stood ready to cut rates as soon as the economy flashed a need for stimulus. Whether coordinated or not, there was clearly a dovish tone to every speech. That they’re even talking about cutting rates, let alone how deeply they could cut is ridiculous. Our take is that the economy is growing at a solid rate and monetary policy, for the first time in a long time, is in balance. Hence, the reason why the long end of the yield curve remained range bound. A rate cut would likely cause a rise in long-term interest rates which, in turn, would worsen the housing sector.
Next week is all about jobs. On Tuesday the government will release the JOLTS job openings report. Job openings had been trending down since early 2022, indicating that the worker shortage was easing, before ticking up last month. We’ll be parsing that report for clues on jobs availability. Similarly, the employment report for February will be released on Friday. Last month the BLS surprised everyone by reporting 353,000 new jobs were created in January. There are some who speculated that seasonal effects distorted the final count. Economists are looking for a more trend-like growth in jobs with the consensus expecting 188,000. Along with that report the BLS will report the year-over-year change in average hourly earnings. The expectation is for a 4.5% gain as inflation continues to be felt in wages.
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