TheBRRR’s Thoughts

GM. We’ve got an action-packed newsletter this morning. Take your time today, it’s almost the weekend.

Markets are looking to rebound to close the week after Thursday’s bloodbath. Indexes are about 1% higher than the overnight low, but still lower by about 1.5% for the week.

Triggering yesterday’s afternoon selloff was Neel Kashkari, a longtime Fed official / swamp creature, perhaps best known for his 2020 interview on 60 Minutes, where he assured the COVID-stunned world that the Fed had “flooded the system with money” and that there was “no end to their ability to do that”.

Yesterday, Kashkari, singing with a humbled tune after the Fed broke the system with too much money and price inflation in recent years, came out and speculated that the Fed might not need to cut interest rates at all because the economy is so strong.

The indexes all fell 2-3% in the subsequent 2 hours of trading.

We’re covering the impact of Kashkari on risk assets, the geopolitical unrest on oil prices, and this morning’s crazy jobs report.

Despite the recent turbulence and declining rate cut expectations, we’re still bullish risk assets through the end of the year.

Oil Surges Amidst Geopolitical Tensions While Kashkari Throws Shade At Rate Cuts

WHAT HAPPENED:

• Israel-UAE Tensions: Diplomatic strains have escalated between Israel and key Gulf countries, particularly the UAE, leading to the UAE halting all humanitarian aid coordination with Israel. This follows Israel's attack on the Iranian embassy in Damascus, prompting Israel to put its embassies worldwide on maximum alert due to threats of an Iranian response.

• Market Reactions: Oil prices surged, with Brent crude exceeding $90 for the first time since October, amid these geopolitical tensions and fears of an escalated conflict affecting oil supply.

• Fed's Stance: Federal Reserve officials, through a series of speeches, indicated a cautious approach towards inflation and rate cuts, with some divergence in their outlooks. Notably, Neel Kashkari's comments on potentially not needing rate cuts if the economy remains robust sparked a sell-off in stocks.

• Crypto and Gold Rally: Amidst the market volatility, cryptocurrencies and gold experienced significant gains. Bitcoin briefly surpassed $69,000 before tumbling back to $67,000, and gold reached new record highs above $2300

WHY IT MATTERS:

• Geopolitical Instability: The heightened tensions between Israel and the UAE, along with the threat of Iranian retaliation, underscore the fragility of Middle Eastern diplomatic relationships and their direct impact on global oil markets and broader financial stability.

• Economic Indicators: The market's reaction, especially in oil and stocks, reflects growing concerns about inflation and the potential for these geopolitical events to exacerbate price pressures, affecting global economic recovery efforts.

• Energy Prices and Inflation: The spike in oil and gasoline prices not only impacts consumer costs directly but also raises broader inflationary concerns, potentially influencing future monetary policy decisions and economic outlooks.
  
  Zerohedge, Yahoo

Confusing Jobs Report Shakes Markets

WHAT HAPPENED:

• Surge in Job Growth: The U.S. economy added an astonishing 303,000 jobs in March, exceeding the highest Wall Street estimate of 290,000. However all of the gains were with part-time jobs - there were actually fewer full-time jobs in the economy than there was a month ago.

• Unemployment Rate Drops: The unemployment rate fell to 3.8% from 3.9%, with variations across demographic groups. Notably, the rate for Blacks rose to 6.4%, the highest in nearly two years, while rates for Asians and Hispanics decreased.

• Labor Force Participation Improves: The labor force participation rate edged up by 0.2 percentage points to 62.7%, signaling broad depletion of savings.

• Foreign-Born Vs US-Born Workers: A long-term trend continues - since Oct 2019 American-born workers have lost 1.5m jobs while foreign-born (legal and illegal immigrants) have gained 3.8m jobs. See chart:

WHY IT MATTERS:

• Economic Confusion The robust job growth and drop in the unemployment rate highlight the ongoing strength of the U.S. labor market, driven by immigration.

• Fed Policy Implications: The strong labor market data, particularly if it persists, could influence the Federal Reserve's monetary policy decisions. While the Fed has signaled potential rate cuts, sustained job growth and low unemployment might complicate these plans by suggesting continued economic momentum.

• Inflation Concerns: Persistent strength in the labor market can fuel wage growth, which in turn might contribute to inflationary pressures. The Fed will have to balance the positive signs of a robust labor market against the risk of inflation when considering future rate cuts.

• Sector-Specific Growth: The significant job gains in the government sector indicates the labor market’s reliance on out-of-control government spending.

• Labor Force Participation: The slight increase in labor force participation suggests more people are entering or returning to the workforce, a sign that inflation pressures are driving people back to the workforce.

Axios, ZH

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The BRRR is meant for informational purposes only. It is not investment advice. Please consult with your investment, tax, or legal advisor before making any investment decisions.ll