US employment statistics (September) were solid, but within the range of the Federal Reserve's expectations and not numbers that could change monetary policy. As student loan repayments resume and excess deposits are depleted, the market is starting to feel the impact of quantitative tightening (QT), and there are also views that US stocks will not rise in the future.
Despite the current situation with inflation and wages peaking, the labor market remains strong, and the difference in monetary policy lies in whether to deal with it through (1) interest rate hikes (Volcker's approach) or (2) stopping interest rate hikes and dealing with it at current levels for an extended period (Powell's approach). Chairman Powell has already chosen the latter, which involves dealing with it over a long period of time, but the market is concerned that strong economic indicators could lead to a change in interest rate policy. That is why long-term bonds are being sold.
The press conference after the FOMC meeting in July, where Chairman Powell left room for further rate hikes depending on future data, is considered a mistake. The IMF annual meeting will be held in Morocco from this week (October 9th to 15th). Over the past two years, there have been clear changes in US monetary policy during discussions between Japan, the US, and Europe. Subsequent FOMC meetings have confirmed changes in monetary policy.
This year...

US long-term bonds continue to decline, with long-term interest rates rising. Stocks are also being sold. The JOLTS job openings were a trigger for selling at 9.61 million, but compared to the number of unemployed at 1.51 times, it is lower than the previous month's 1.53. Also, it is definitely lower than the maximum of 2 times, so it is not the true cause.
The market is feeling fear due to the continuation of a strong economy and high inflation (crude oil, rent, wages), as well as the maintenance of further interest rate hikes and long-term high interest rate policies. There is also anxiety about the deterioration of bond supply and demand due to the change in macro policy for corporate capital investment to be done with government subsidies instead of borrowing.
In addition, the recent rise in long-term interest rates (fall in long-term bonds) is affecting the approaching deadline of the trader's and hedge fund's bonus calculation period at the end of October (effectively the end of the period). Adjustments to positions must be made before the end of the period. Especially this Friday, which is a unique day for flash crashes where significant market fluctuations are more likely to occur. This is because it is the day before a 3-day weekend in the US and Japan and coincides with the holiday in China, resulting in a sudden reduction in liquidity.
Downgrades, government shutdowns, and concerns about supply and demand have expanded the unwind positions in US bond futures.

Since the government shutdown was avoided, the movement to buy risk assets by selling safe assets has intensified. As a result, long-term interest rates have risen. Uncertainty factors overlap, such as the postponement of government shutdowns, the UAW strike, and the resumption of student loan payments. In this situation, opinions are divided even among Fed directors. Just yesterday, while Director Bowman of the hawk faction insisted on multiple interest rate hikes by the end of the year even if PCE settles down, Vice Chairman Barr (in charge of financial supervision) acknowledged that issues have already shifted to a period of maintaining high interest rates, and interest rate hikes are in the final phase. In the end, Chairman Powell will decide, and it seems that Chairman Powell will agree with Vice Chairman Barr.
The difference in judgment between Director Bowman and Vice Chairman Barr is how much emphasis is placed on financial stability in monetary policy purposes. Vice Chairman Barr said that financial stability has been the biggest concern since the birth of the Fed system in 1913, and he is afraid that raising interest rates too much will destabilize the financial system. In order to achieve the three policy goals of price stability, economic stability, and financial stability with a single policy instrument (interest rate), it is necessary for the Fed to make comprehensive judgments based on exquisite technology. Ba...

The US CPI (August) was stronger than expected, but there was no urgency to raise interest rates at the FOMC meeting on September 20th. The composite rate was 0.6%/3.7% and the core rate was 0.3%/4.3%. The super core rate (excluding energy and rent) was 0.4%/4.0%. Although the inflation rate has risen rapidly from 3.2% to 3.7%, it has clearly declined from last year's peak of 9.1%.
The goal of reaching 2% has not been achieved, and the growth of the economy is only 0.2% compared to the previous year, reflecting the economic downturn. Rent, which accounts for 35% of the allocation, is high at 7.3% compared to the previous year, but it has gradually decreased compared to the previous month. The wages that determine the price of services, according to the Atlanta Fed's wage growth tracker, are 5.3%, which is below the pre-COVID 3-4%, and clearly lower than the peak of 6.7% last year.
In summary, inflation has peaked and there are signs of a decline, but the timing of reaching the target is not visible. There is a need for policy decisions on whether to achieve the target at a higher interest rate or a longer interest rate. From a global perspective, the weak economic performance of other countries...

The possibility of a government shutdown due to the US budget running out (by September 30th) has been increasing. A spending bill must be passed by the end of September, but the conservative hardliners of the Republican Party, the Freedom Caucus, are demanding less spending than during the Biden-McCarthy agreement in May, making an agreement difficult.
Given the high possibility of a government shutdown, short selling of US treasury bonds is not possible. This can be confirmed by past examples. During the government shutdowns in 1995-96 and 2018-19, confrontations over the budget stimulated demand for safe assets, causing US bond prices to rise. It is unlikely that US long-term interest rates will rise (price will fall) in September.

The reason this article had an impact is because the leak of the YCC fine-tuning by Deputy Governor Uchida (Nikkei newspaper) on July 6 led to actual changes on July 28. Although the media and the leaker are different, it is the same composition. Transmitting the intentions of monetary policy to the market through the media is something that the Federal Reserve (an example being Timothy Aeolus of the Wall Street Journal) has been doing ahead of the Bank of Japan, and it seems that the Bank of Japan has followed suit. Market reception may be skeptical, and some see it as a view of the outlook report next year (January 2024), but I believe that there is a high possibility of lifting the negative interest rate at the Bank of Japan's monetary policy decision meeting on September 2...
The reason this article had an impact is because the leak of the YCC fine-tuning by Deputy Governor Uchida (Nikkei newspaper) on July 6 led to actual changes on July 28. Although the media and the leaker are different, it is the same composition. Transmitting the intentions of monetary policy to the market through the media is something that the Federal Reserve (an example being Timothy Aeolus of the Wall Street Journal) has been doing ahead of the Bank of Japan, and it seems that the Bank of Japan has followed suit. Market reception may be skeptical, and some see it as a view of the outlook report next year (January 2024), but I believe that there is a high possibility of lifting the negative interest rate at the Bank of Japan's monetary policy decision meeting on September 22. Communicating through the media can relieve tension and avoid market turmoil.

The interest rate hike skip at the 9/20 FOMC is almost certain unless an unexpectedly large number comes out in the CPI on the 13th. If interest rates are raised one more time, around 4.25% is an appropriate value for the US long-term interest rate. I think the Fed is making a small leap forward in the correctness of its own monetary policy. The governor of the NY Federal Reserve commented that the surprise in recent economic indicators was the high GDP, which eliminated the recession scenario.
Meanwhile, inflation peakouts have been confirmed in price statistics, and as Federal Reserve Board Director Waller pointed out the other day, the tightness of labor supply and demand, which remains the last concern in terms of prices, has begun to loosen. The current US economy is in a dreamy situation where prices will calm down without recession. However, this does not mean that other countries can run the same economy. Concerns about the future are probably excessive appreciation of the dollar.
China is in deflation due to the division between the US and China and shared wealth, Europe is in recession due to structural changes, and Japan cannot see a catch-up of wage increases even if prices rise. Also, if the US economy expands crude oil consumption again, the US, which is an oil exporter, will benefit, and Europe and Japan, which do not produce oil, will suffer from trade deficits. Europe and Japan are crying again this year, and the IMF and G7 countries in October...

The Bank of Canada's monetary policy meeting assessing the U.S. interest rate hike two days ago decided to keep rates unchanged. It is a conclusion based on signals of easing excessive demand, the lag in monetary policy, and the strength of underlying inflation. The Bank of Canada before the pandemic did not move before the Federal Reserve. However, in the interest rate hike curve from spring 2022 onwards, there have been noticeable proactive moves ahead of the Federal Reserve. They made significant 1% interest rate hikes, stopped rate hikes in March, and resumed rate hikes in June.
It is self-evident that the Canadian and USA economies, which are connected by the real economy through USMCA, are interrelated. With the recent interest rate hike pause, it seems highly likely that Canada's policy interest rate will become the terminal rate (5%). Even in the strong-demand USA, the peaking out of inflation is evident. The USA will also determine the terminal rate at 5.5-5.75% a little later, at the FOMC meeting on November 1st.
For Chairman Powell, the pivotal FOMC meeting is not in September but in November. Two years ago, acknowledging that inflation was not temporary, last year they decided to slow the pace of rate hikes. This year will likely mark the final rate hike decision. Last year's rate hike pace...

After Labor Day, the summer vacation ends and investors from Europe and the United States return to the market. In comparison to before summer vacation, it has become quite clear that the Federal Reserve will hike interest rates one more time, with the terminal rate reaching 5.5-5.75%. Furthermore, even if the European Central Bank raises interest rates in September, it is increasingly likely that it may be their final increase. Even if interest rate hikes in Europe and the United States conclude this year, there is unlikely to be any rate cuts next year. Moving forward, the market will transition from discussions on the presence of interest rate hikes to discussions based on the assumption of unchanged interest rates.

US employment statistics (August) confirm the easing of supply and demand in the labor market. The unemployment rate is 3.8%, higher than the previous month (3.5%), but within the range of 3.4-3.8% since dropping below 4% in 2022. It was 3.7% a year ago. The number of non-agricultural sector employees is 0.187 million, also a modest figure. In terms of the labor force of 167 million people, it is not dramatic. Average hourly wages increased by 4.3% and average weekly wages increased by 4%, as expected.
Changes are seen in labor force participation rate and the number of unemployed individuals. The labor force participation rate is 62.8%, higher than the previous month (62.6%) and a significant increase from a year ago (62.3%). Perhaps students who started working after the student loan repayment moratorium ended filled the gap left by early retirement of the elderly. The number of unemployed individuals is 6.35 million, higher than the previous month (5.84 million) and a year ago (6.02 million). Clearly, the increase of over 6 million unemployed individuals is evidence of labor supply-demand easing.
These figures are important when compared with the job vacancy data from the Job Openings and Labor Turnover Survey (JOLTS) conducted by the Bureau of Labor Statistics, which serves as a leading indicator. The job vacancies in July were 50...