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The debt-ceiling deal has made it past the House and now attempts to sneak through the Senate, Powell has leveled up from hiking to skipping, and bulge bracket CEOs are dropping like flies.

Let’s dive in.

Economy Heat Check

As of 5/31/2023 market close, unless otherwise stated.

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Expectations Reset

Job Openings and Labor Turnover (JOLTS)

The number of available US jobs surged in April, taking J Pow straight from Memorial Day hangover to migraine. Job openings increased to 10.1 million in April, raising even more flags about a rising trend in job cuts. The Department of Labor's report revealed growth in opportunities across sectors, despite what recent Amazon headlines may signal.

Layoffs across the job market decreased to 1.6 million in April, down from 1.8 million in March. Note that makes up only about 1% of the workforce. Despite worries about job security, the job market’s data could care less. It still remains favorable for applicants and workers, somehow, with little indication of a cooling off.

While more people are staying in their current jobs, there are still pockets of opportunity, particularly in leisure and hospitality roles. But the gap between job openings and available workers has decreased by 24% in the past year. Wage growth has also cooled, reducing major talent shortages. And though worker leverage has decreased compared to a year ago, the latest data signals a job market that’s still thriving and not indicative of an oncoming recession. Guess there are still dreamers out there after all.

Debt-Ceiling Tees Up T-Bills

The House green-lit the debt ceiling deal, which now heads to the Senate. But a green-light from the Senate would green-light a flood of Treasury bills.

Once Congress reaches a resolution on the debt-ceiling, the Treasury will be waiting and ready to roll into fresh funds following the prolonged standoff. To do so, it’s expected to flood the market with Treasury bills (T-bills). The big question on traders’ minds is who takes the bait. And at what cost.

Estimates indicate approximately $1 trillion could enter the market before the end of August. That would be about five times the supply of an average three-month period prior to the pandemic.

The main culprit, or potential buyer, would be money-market funds. They’ve grown favorably since the regional banking crisis, which has left them well-positioned to be major buyers of the bill supply. These funds now manage nearly $5.4T in assets. And what’s $1T down in the grand scheme of things, when they would’ve otherwise spent most of it at the US Open.

But market participants anticipate that the bills may need to be offered at higher yields, potentially exceeding the current levels, in order to sweeten the offer. The unintended consequence of a debt-ceiling deal being reached, at least in the short-term, could be increased T-bill issuance. And at an attractive pricing to attract investors.

Oil Futures Free Fall

Short sellers be warned – or that’s what Saudi’s energy minister wants traders to think about another round of production cuts. Oil futures took a nosedive in May, leaving U.S. oil prices down more than 11% for the month.

The culprit for the crash? Weak economic data from China, apparently causing panic about the demand for crude from one of the world's largest importers. Who knew the fate of oil prices could be determined by the manufacturing purchasing managers index?

Investors were left clutching their barrels of oil as prices hit a 10-week low. West Texas Intermediate (WTI) crude settled at a measly $68.09 a barrel, its lowest point since March 20. Meanwhile, Brent crude, the global benchmark, waved goodbye to 8.7% of its value for the month, ending at a paltry $72.66 a barrel. Seems the oil market is more volatile than usual, with fluctuations influenced by Chinese data, OPEC's indecisiveness, and even the mere whisper of lifting sanctions on Iran.

Still to Come: Fed Pushes to Pause

Fed officials are hinting at the possibility of holding off on a rate hike at their June meeting – unless Friday's jobs report has a mind of its own. Investors initially anticipated a rate increase next month, but they’ve been less committed than banks are to “hybrid” schemes. Recent statements from policymakers underscore their preference to delay any decision, unless Friday’s unemployment report reveals robust employment figures.

Despite recent signals from some central bank officials supporting continued rate hikes, others have expressed openness to either an increase or a pause. None other than Fed Chair J Pow is part of the anti-commitment club, stressing the need for “cautious assessment” based on data and the evolving outlook. Mixed messages from officials show just how challenging the committee’s upcoming deliberations may be.

This approach buys time for officials to assess the economic impact of previous rate hikes and recent banking stress. Or, in a politician’s spin on the strategy, a more “comprehensive understanding of the situation” before proceeding with further tightening measures.

The market expectation of a June rate increase has decreased after many of the recent Fed statements. If the Fed decides not to raise this cycle, it could send a confusing signal to markets about their commitment to combating inflation. This evolving strategy of potentially skipping the June hike suggests a higher likelihood of a rate increase in July. The median projection of the peak rate at a 22-year high of around 5.4%.

Meme Bank

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