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"Bad News" no longer "Good News"
Aurelie Barthere
Key Takeaways
7 min read
  • The US labor market is cooling, but remains at solid levels. This is relevant for the Fed but historically does not have any value to forecast a recession.
  • More concerning is what the US ISM Manufacturing index is signaling: an ISM between 46 and 47 (current level) has coincided with a US recession in 48% of the historical occurrences since 1970.
  • The Fed's May decision (+25bps hike or pause) will likely depend on the CPI print this week, but, regardless of the May outcome, the Fed is likely to stick to high rates in the coming months even as growth starts to deteriorate.
  • Equity markets have started to price that “bad news” for the economy are also “bad news” for equity prices. It remains to be seen whether crypto will follow equity.
  • Next tactical indicator to monitor: BTC call-put spread, for now risk-on but close to switching to risk-off.

US labor markets: Some signs of normalization

The US labor market is showing signs of normalizing, from historically tight levels. This is visible across several important data points published last week: average weekly hours, initial jobless claims, average hourly earnings. Among the unemployed, the number of permanent job losers increased by 172k to 1.6 million in March, especially in the wholesale, storage and retail trade sectors. Total nonfarm payroll employment rose by 236k in March, less than the average monthly gain of 334k over the prior six months. Average hourly earnings growth has been singled out by Fed Chair Powell in several press conferences, as a metric to assess the strength of wage growth, and, on a 3-month...