No Bird Flu on Sunday

February 7, 2025

Good afternoon, everyone. Another jobs report in the books. It's moving quick and equally all over the map.?

Let's Take a Look?

We've been at this for a very long time. It's hard to remember a five-week period to begin a new year like this. Don't blink. The news flow is all over the map. Literally. And we have certainly highlighted the risk of doing too much at once. Let's break it down in buckets for today.?

The Employment Report: January is always a difficult number. The net revisions were less onerous than previously thought. Hours were down, could be weather related. But wages higher stuck out. The Unemployment Rate and Household Survey incorporated population and birth death revisions. Population around migrants. So, not an apple to apples, month over month. Labor force participation increase which is good. And we think will continue under President Trump. The JOLT's report showed normalization toward pre-pandemic levels. The impact of DOGE still to be felt and determined. The job market seems stable. A Fed on hold report today when all is said and done. But we could see downside ahead.?

Trump/DOGE/D.C.:?Where do you begin? It's full speed ahead. Treasury Secretary Bessent presents as smart and thoughtful. Comments around the Fed, focus on the UST 10-year, the TBAC, and looking at CBO scoring as an insider. There is merit in DOGE. But it needs to be managed. Because ultimately Elon Musk and company will go back to private life. We can't eliminate every federal employee. Technology certainly needs to be upgraded. To the extent it makes a dent in the deficit Godspeed. But there's practical and political risk in play here in going too far.?

On President Trump/Tariffs/Geopolitical/Imperialism: Always prepare for things to change or get dialed back. Tariffs are not going away. But anyone out there comparing this economy to the 1800's should be sat down for some therapy. We're not replacing income tax with tariffs. Also, no tax on tips, social security, overtime, and more, is costly. At the same time the new Treasury Secretary is selling fiscal responsibility and a focus on spending. If you're going to use tariffs to negotiate so, be it. For revenue? Just invoke an across-the-board universal tariff into the United States that is agnostic to industry. Phase in the levels overtime and see how it behaves.? ?

On the 10-year UST focus:?It's not that easy. Possible to achieve given all that's on the table. But inflation expectations are rising. Getting energy costs down across the board will be critical but takes time. Should be the focus. The Treasury Secretary was right advising in backing away from pressure on the Fed with official rates. If we can demonstrate "concrete" progress on the deficit that's a big win. And rates will react to those both dynamics. We can't "force" long end rates lower unless we embark on unorthodox measures.??

The Fed/Rates/Economy: The Fed is firmly on hold. We've advocated. Today's Michigan reports, inflation expectations on the rise both short and long term. Market-based have been moving that way too. Political narratives are very much a part of these surveys. Now, looking at potential tariffs, what they mean potentially, etc. This week Chair Powell will be on the Hill. It will be lively without question. And he will stress a notion of independence, patience with rates, and the need to see how the data evolves in the coming months. Chair Powell still believes the Fed is restrictive. Just not as restrictive as before the calibration. But that's not necessarily the view from some other committee members. It feels balanced to us. We could see the Fed 50-basis points lower or higher from here. We don't want the higher.?

The economy is plodding along. Too much uncertainty could create bumps of weakness moving forward. The Fed will be steady but the moving pieces in D.C are extreme. Sometimes, what's longer term positive could have short term repercussions in the data.?

Markets: Choppy. The direction of traffic seems good. Capital markets have been wide open with a few days of uncertainty. But we need to get used to this. Sorting through the noise will be challenging. Credit has been solid. Equity markets have been challenged by thematic issues and overweight sectors. And a 10-year UST at 4.50% doesn't pose issues. We've been in a range in UST 10-year. If we begin to drift toward 5% in UST, it will begin to roil markets and some folks down in D.C.?

Super Bowl: Two great teams. As a lifelong NY Giants fan it's a tough one but I'm rooting for and rolling some dice on the Birds!?

On the Ground

Enjoy the game. Hoping for some headline relief this weekend but not confident! Next week fully packed: Powell, CPI, PPI, Retail Sales, and the quarterly UST refunding.?

Rates likely continue to back up here into supply next week.?

Have a great and safe weekend!?