The US employment statistics (September) were solid, but they were within the range of the Federal Reserve's expectations, and were not figures that could change monetary policy. While student loan payments are being resumed and excess deposits are being exhausted, QT has begun to be effective in the market, and there is also a view that an increase in US stocks is not expected in the future.
The labor market is strong even in the current situation where inflation and wages are peaking out, and there is a difference between ① dealing with interest rate hikes (Volker style) or ② whether to stop interest rate hikes and deal with them for a long period of time at the current level (Powell style). Chairman Powell has already selected the latter, which will be addressed over a long period of time, but the market is concerned that interest rate hike policies will be changed if strong economic indicators come out. This is why long-term bonds are being sold.
At the press conference after the FOMC in July, it is said that it was Chairman Powell's mistake that left room for further interest rate increases depending on future data on monetary policy. The IMF General Meeting will be held in Morocco starting this week (10/9-15). The monetary policy of the United States has clearly changed in the past two years due to discussions between Japan, the US, and Europe. Subsequent FOMC confirmed changes in monetary policy.
This year...

Long-term US bonds have continued to fall, and long-term interest rates have continued to rise. Shares are also being sold. Sales were triggered by the large number of JOLTS job openings of 9.61 million, but when viewed from the number of unemployed people, it was 1.51 times higher, which is lower than 1.53 in the previous month. Also, since it has definitely fallen from the maximum of 2 times, it cannot be said that it is a real factor.
The market is fearful of further interest rate hikes and the maintenance of a high interest rate policy over a long period of time due to a strong economy and continued high inflation (crude oil rent and wages). I feel uneasy about the deterioration in bond supply and demand due to changes in macro policies where corporate capital investment is not borrowed, but rather government subsidies.
Additionally, the recent rise in long-term interest rates (fall in long-term bonds) is influenced by the fact that the bonus calculation period for traders and hedge funds is approaching the end of October (factual end of the period). I have no choice but to adjust my position before the end of the term. This Friday in particular is a unique day for flash crashes where major market fluctuations are likely to occur. This is because the day before the 3 consecutive holidays between Japan and the US and China's consecutive holidays overlap, and liquidity decreases all at once.
Due to downgrades, government closures, and supply-and-demand unease, the selling position of US bond futures against spot has expanded...

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 not enough urgency to ask for an interest rate hike at the FOMC on 9/20. Overall, it was 0.6%/3.7%, and the core was 0.3%/4.3%, and the supercore (excluding energy rent) was 0.4%/4.0%. Although the inflation rate has risen sharply from 3.2% to 3.7%, it has clearly declined when viewed from last year's peak of 9.1%.
It's just that there are no prospects for reaching the 2% target, and the growth in goods was only 0.2% compared to the previous year, reflecting the commodity recession. Rent, which accounts for 35% of the allocation, is as high as 7.3% compared to the previous year, but if you look at it month-on-month, it has gradually declined. Wages that determine service prices are also 5.3% if you look at the Atlanta Fed's wage growth tracker, and they just haven't reached 3-4% before COVID-19, and have clearly dropped from last year's peak of 6.7%.
In short, inflation has peaked out, and there are signs that it will fall, but the time for reaching the target is not in sight. It is necessary to make policy decisions on whether to achieve the target at a higher interest rate or achieve it with a longer interest rate. Other countries' weak economies from a global perspective...

The possibility of a government shutdown due to a US budget run out (9/30) has increased. The spending bill must pass by the end of September, but the Republican Conservative Hardline Freedom Caucus (Freedom Caucus) is demanding less spending than when the Biden-McCarthy agreement was reached in May, so an agreement is difficult.
As long as there is a high possibility that the government will shut down, it is impossible to short sell US bonds. You can also check past cases. At the time of government shutdowns in 1995-96 and 2018-19, conflicts over budgets stimulated demand for safe assets, and the exchange rate of US bonds rose. It is unlikely that long-term interest rates in the US will rise (price fall) in September.

The Yomiuri Shimbun's leaked article on negative interest rate cancellation options shocked not only the Japanese market, but also the US bond market. This is because Japanese institutional investors are seeing the possibility of selling foreign bonds all at once and buying yen bonds. Already at the press conference of the Bank of Japan monetary policy meeting on July 28, Governor Ueda acknowledged that monetary policy normalization is a weapon to revise the depreciation of the yen. The side effects of YCC are significant, and it is clear that negative interest rates only have a symbolic meaning (only mail savings and trust banks are actually applied). In that sense, fine adjustments to YCC and cancellation of negative interest rates were anticipated.
The reason this article had an impact is that Vice President Uchida's YCC fine adjustment leak (Nikkei Shimbun) on 7/6 led to a change in reality on 7/28. Although the mass media and the person who leaked it are different, the composition is the same. WSJ (reporter Timiraos) took the lead in conveying monetary policy intentions to the market through mass media, and it seems that the Bank of Japan also imitated it. The market's acceptance is skeptical, and there are people who look at it at the time of next year's outlook report (2024/1), but this time it's 9/2...

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 day before yesterday, the Canadian monetary policy meeting, which predicts interest rate hikes in the US, decided to leave it unchanged. This is the conclusion by comparing the signal of a settlement of excessive demand, the lag in monetary policy, and the strength of underlying inflation. The Central Bank of Canada before COVID-19 did not move ahead of the Fed. However, in the interest rate hike curve from the spring of 2022 onwards, there was a noticeable movement that took the lead on the Fed. There was a proactive move, such as a drastic interest rate hike of 1%, stopping interest rate hikes in March, and raising interest rates again in June.
It is self-evident that the economies of Canada and the United States, where the real economy is connected by the USMCA, are linked. There seems to be a high possibility that Canada's policy interest rate will be at the terminal rate (5%) due to the suspension of interest rate hikes this time. Even in the US, where demand is strong, inflation is clearly peaking out. The US will also decide the terminal rate at 5.5-5.75% at the FOMC on November 1, a little later.
For Chairman Powell, the FOMC that marks a turning point is November, not September. Two years ago, we acknowledged that inflation was not temporary, and last year we decided to slow down the pace of interest rate hikes. The final decision to raise interest rates will be made this year. The pace of interest rate hikes last year...

After Labor Day, summer vacation is over, and Western investors return to the market. Compared to before summer vacation, it has become quite clear that the Fed's interest rate hike is one more time, and the terminal rate is 5.5-5.75%. Also, even if the ECB raises interest rates in September, there is a growing possibility that it will be the last rate hike. Even if interest rate hikes in Europe and the US end this year, interest rate cuts next year are unlikely. In the future, the market will change from discussions about whether interest rates will be raised or not to discussions based on the assumption of interest rates that do not move.

The US employment statistics (August) confirm the easing of supply and demand in the labor market. The unemployment rate was 3.8%, up from the previous month (3.5%). However, it is within the range (3.4-3.8%) since breaking 4% in 2022. A year ago, it was 3.7%. The number of people employed in the non-farm sector is 187 thousand. This is also a mediocre number. With a workforce of 167 million people, that's not dramatic. The average hourly wage increased by 4.3%, and the average weekly wage increased by 4%, as expected.
What has changed is the labor participation rate and the number of unemployed people. The labor participation rate was 62.8%, which was higher and more significant than a year ago (62.3%) than the previous month (62.6%). Students who have stopped paying student loans may have filled the hole of early retirement for the elderly by starting to work. The number of unemployed people was 6.35 million, which is higher than the previous month (5.84 million) than a year ago (6.02 million). Clearly, the fact that there were over 6 million unemployed people is evidence of an easing in labor supply and demand.
It is important to compare this figure with the number of job offers in the JOLTS recruitment labor transfer survey conducted by the Bureau of Labor Statistics, which is a leading indicator. The number of job offers in July was 50 more than the previous month...