Inflation is rising, with CPI climbing steeply above the Fed’s 2% target. But core CPI excluding energy and food remains stable.
Job gains were the lowest since May 2016.
But the unemployment rate fell to a low 4.5%.
Hourly wage rate growth has eased below 2.5%, suggesting that underlying inflationary pressures are contained.
The Fed is unlikely to accelerate its normalization of interest rates unless we see a surge in core inflation and/or hourly earnings growth.
Dow Jones Industrial Average is consolidating in a narrow band between 20400 and 20800. Narrow bands in an up-trend signal accumulation and breakout above 20800 would signal another advance.
Declining 21-day Twiggs money Flow is typical of a consolidation, provided it respects the zero line. A trough above zero confirms medium-term buying pressure.
From Lakshman Achuthan at ECRI:
Headline jobs growth came in well below expectations, and weather played some part in suppressing job growth, both in construction and retail.
But the jobless rate dropped to 4.5%, its lowest reading since 2007, so the Fed’s “full-employment” mandate has been met.
Their other mandate is on inflation, and over the past year I’ve discussed our U.S. Future Inflation Gauge, which anticipated the inflation cycle upturn shown by the chart. Today the forward looking USFIG remains near an 8¾ -year high.
The chart shows the year-over-year PCE inflation rising sharply to a 5-year high, and breaching the Fed’s 2% inflation target which is defined by this inflation measure.
For those who might think this is just about oil prices, please note that core PCE inflation, ex-food and energy, has also been rising, and now above 1¾%, the highest reading in over 2½ years.
This is what a cyclical upswing in inflation looks like.
Moreover, the U.S. economy has a good tailwind from rising global growth.
All of this helps explain why the Fed is finally able to implement a full-fledged rate hike cycle.
Source: Jobs, Inflation & the Fed | News | News and Events | ECRI
Don’t know if he is long, but Donald Trump is doing his best to drive up demand for gold.
From the FT overnight:
Donald Trump has warned that the US will take unilateral action to eliminate the nuclear threat from North Korea unless China increases pressure on the regime in Pyongyang.
In an interview with the Financial Times, the US president said he would discuss the growing threat from Kim Jong Un’s nuclear programme with Xi Jinping when he hosts the Chinese president at his Florida resort this week, in their first meeting. “China has great influence over North Korea. And China will either decide to help us with North Korea, or they won’t,” Mr Trump said in the Oval Office.
“If they do, that will be very good for China, and if they don’t, it won’t be good for anyone.”
But he made clear that he would deal with North Korea with or without China’s help. Asked if he would consider a “grand bargain” — where China pressures Pyongyang in exchange for a guarantee that the US would later remove troops from the Korean peninsula — Mr Trump said:
“Well if China is not going to solve North Korea, we will. That is all I am telling you.”
Nothing like the threat of nuclear war to drive up the price of portable assets. Not that it would do much good if you are on the receiving end.
Spot Gold broke resistance at $1250 an ounce. Follow-through above $1260 is likely and would signal an advance to $1300.
Theresa May had a calmer, less belligerent approach: “….encourage China to look at this issue of North Korea and play a more significant role in terms of North Korea … I think that’s where our attention should focus.”
Dow Jones Industrial Average displays a descending broadening wedge on the daily chart. Thomas Bulkowski describes this as a “mid list performer ….found most often with upward breakouts in a bull market. Downward breakouts are quite rare.”
The correction seems mild and lacks urgency from sellers. It is very likely to end with an upward breakout, above the wedge at 20800, signaling another advance. Watch for a failed down-swing within the wedge pattern. According to empirical testing done by Bulkowski, a partial decline has a high probability (87%) of resolving in an upward breakout.
Latest GDP numbers confirm that low growth of the past decade continues.
The quick rule-of-thumb forecast — Private sector employee payroll x Average Hours Worked x Average Hourly Rate — has proved remarkably accurate and has become one of my favorite indicators.
One of my favorite indicators of financial market stress is Corporate bond spreads. The premium charged on the lowest level of investment-grade corporate bonds, over the equivalent 10-year Treasury yield, is a great measure of the level of financial market stress.
Levels below 2 percent — not seen since 2004 – 2007 and 1994 – 1998 before that — are indicative of a raging bull market. The current level of 2.24 percent is slightly higher, reflecting some caution, but way below elevated levels around 3 percent.
The Financial Stress Index from St Louis Fed measures the degree of stress in financial markets. Constructed from 18 weekly data series: seven interest rate series, six yield spreads and five other indicators. The average value of the index is designed to be zero (representing normal market conditions); values below zero suggest low financial stress, while values above zero suggest high market stress.
Current levels, below -1, also indicate unusually low levels of financial market stress.
The Leading Index from the Philadelphia Fed has declined slightly in recent years but remains healthy, at above 1 percent.
Most recessions are preceded by growth in currency in circulation falling below 5 percent, warning that the economy is contracting.
Current levels, above 5 percent, reflect healthy financial markets.
On the other side of the Pacific, currency growth is shrinking, below 5 percent for the first time in 7 years. A sustained fall would warn that the economy is contracting.
Further rate cuts, to stimulate the economy, are unlikely. The ratio of Household Debt to Disposable Income is climbing and the RBA would be reluctant to add more fuel to the bonfire.
There is no immediate pressure on the RBA to raise interest rates, but when the time comes the impact on the housing market could be devastating.
The commentator’s curse. Three days after I posted that Dow Jones Industrial Average was consolidating in a bullish narrow band below resistance at 21000, the Dow breached support at 20800. Downward breakout warns of a correction with support at 20000. Declining 21-day Twiggs Money Flow indicates medium-term selling pressure. Follow-through below 20600 would strengthen the (medium-term) bear signal but the primary trend remains up.
The false break above 21000 was a hint that all was not well with the trend. Unfortunately we often only see what we expect and miss the subtle clues.
The Dow is in Stage III of a bull market. This is confirmed by a primary up-trend on the Transportation Average, although the current month shows a correction.
Small Caps indexes like the Russell 2000 also display a strong up-trend, reinforcing the Stage III conclusion.
Likewise, the Nasdaq 100.
I have not drawn conventional trendlines, on the above charts, through the lowest points in the up-trend. Instead I have dragged a linear regression line down to “touch” the mid-point lows. I find this offers a better fit in many cases where there is an initial (bounce) spurt at the start of the trend.
John Bollinger says that a Band Width squeeze has preceded many spectacular moves on the S&P 500. A Bollinger Band squeeze highlights when the bands contract into a narrow “neck” indicating low volatility. The squeeze is normally signaled by a fall in the Band Width indicator to below 2.0%.
Upward breakout from a narrow “squeeze” in late January flagged a strong advance, from 2280 to 2400.
Now we have the opposite, with breakout below 2360 warning of a correction. But Bollinger warns that the market often starts with a fake move, in the wrong direction, before the real move commences. So we need to be cautious.
The commentator’s curse. Three days after I posted that Dow Jones Industrial Average was consolidating in a bullish narrow band below resistance at 21000, the Dow breached support at 20800. Downward breakout warns of a correction. Expect support at 20000. The false break above 21000 was a hint that all was not well with the trend. Unfortunately we often only see what we expect to see and miss the subtle clues.
The Dow is in Stage III of a bull market, with long-term Twiggs Money Flow signaling strong buying pressure. Chances of a (primary trend) reversal seem low.
[Correction: Breach of support was at 20800, not 21800.]
Dr. Van Jackson is an Associate Professor at the Asia-Pacific Center for Security Studies, and author of the book Rival Reputations: Coercion and Credibility in US-North Korea Relations:
Social media is abuzz with news that China’s Ministry of Commerce announced it will suspend coal imports from North Korea as part of U.N. Security Council sanctions enforcement for the North’s most recent nuclear and ballistic missile tests in violation of prior Security Council resolutions. So China is finally standing arm-in-arm with the United States and international community to actually do something about North Korea. That’s great, right? Wrong.
China’s suspension of coal imports is smoke and mirrors; an act of geopolitical misdirection. The United States is being played, as it has in the numerous past instances when China supported sanctions resolutions against North Korea at the United Nations only to fail to implement them….
….China’s “emotions” toward North Korea don’t drive its policy. China has a long tradition of paying lip service toward cooperation with the United States and the international community while largely failing to apply any meaningful pressure on North Korea, and for good reason: It doesn’t want a nuclear-armed neighbor on its border to become a nuclear-armed enemy. We ignore China’s enduring strategic interests in North Korea at our peril.
Source: Don’t Believe the Hype: China’s North Korea Policy is All Smoke and Mirrors
