Axios Markets: We don't have maximum employment or stable prices

1 big thing: We don't have maximum employment or stable prices | Monday, February 08, 2021

Open in app View in browser   Presented By BlackRock   Axios Markets By Dion Rabouin ·Feb 08, 2021 Good morning! Was this email forwarded to you? Sign up here. (Today's Smart Brevity count: 1,116 words, 4 minutes.) 📖 Trivia: Mathematical textbooks show that Africans along the banks of the Nile and 2,000 years before the birth of Christ had calculated the volume of a truncated pyramid and the surface area of a sphere utilizing what two branches of math?     1 big thing: We don't have maximum employment or stable prices Illustration: Sarah Grillo/Axios   January's nonfarm payrolls report made clear that the U.S. is not experiencing, nor is moving toward, maximum employment. The paltry 49,000 jobs added is only the tip of the iceberg of bad news the report contained. By the numbers: The Labor Department also reported that the U.S. shed an additional 87,000 jobs in December, for a total of 227,000 jobs lost. Further, in November the U.S. added 72,000 fewer jobs than originally reported. That brought the three-month average of job gains to just under 29,000, which is about 100,000 less than needed simply to keep up with population growth — to say nothing of the 9.9 million people who had jobs in February 2020 but do not now. What they're saying: "I'm afraid that the job market is stalling," Treasury secretary and former Fed chair Janet Yellen told CBS on Sunday morning. "We have 10 million people unemployed, 4 million have dropped out of the labor market and another 2 million are working part time who really would like full-time work." "We're in a deep hole with respect to the job market and a long way to dig out." The big picture: While the low-tax environment and the Fed's supereasy monetary policies are helping make businesses flush with cash, it's not being used to hire workers. Additional profits are being plowed into technology advances like AI and e-commerce, stock buybacks and adding cash reserves to pad balance sheets. To be sure: As Fed chair Jerome Powell has said repeatedly, the economy's recovery is largely dependent on beating the coronavirus pandemic. However, the Fed's $3 trillion reaction to the pandemic has clearly been very beneficial to asset prices since March, but the real economy and real people have seen much less benefit. The intrigue: While Powell has said the Fed must continue its easy money policies to help low-income workers and people of color who have borne the brunt of the crisis, researchers from the New York Fed found the Fed's policies have done little to reduce the inequality they face. "On the contrary, it may well accentuate inequalities for extended periods," the New York Fed's Monetary Policy and Racial Inequality report concluded. "Over multi-year time horizons, the employment effects are substantially smaller than the countervailing portfolio effects." On the other side: Prices have hardly been stable. In addition to the extreme increase in health care and higher education costs and the price of food climbing at its fast rate since 2014, asset prices are inexplicably high. The price of the stock and housing markets are increasingly untetethered from fundamentals and commodity prices now are moving in a similar direction.     Bonus chart: Food prices rise to highest since 2014 Data: UN FAO food price index; Chart: Axios Visuals The U.N.'s Food and Agriculture Organization's food price index rose to 113.3 in January, up 4.3% from December's level. The increase not only marked the eighth consecutive month the index has risen but the highest it has been since July 2014.     2. Catch up quick The U.S. Treasury yield curve — the difference between short- and long-dated government bond yields — rose to its steepest level in more than five years Friday. (FT) Bitcoin rose back above $40,000 a coin briefly in overnight trading and has held near that level while its free float has fallen to the lowest since 2014. (Bloomberg) A new study shows the U.K. variant of COVID-19 is spreading rapidly across the U.S., doubling its prevalence in confirmed infections every 9.1 days. (Washington Post)     A message from BlackRock Larry Fink's 2021 letter to CEOs     The global economy will be transformed by the transition to net-zero. In his annual letter, BlackRock's Chairman and CEO shares why he's optimistic about the future health of the economy – not in spite of the energy transition, but because of it.     3. Earnings on pace to be positive for the first time since 2019 Fourth-quarter earnings have been far better than expected for S&P 500 companies, with the index overall reporting year-over-year earnings growth of 1.7% as of Friday. Details: The expected earnings of the index have increased consistently. Analysts had predicted a year-over-year decline in earnings of -2.4% last week and a year-over-year decline in earnings of -9.3% at the end of the fourth quarter, according to FactSet senior earnings analyst John Butters. If 1.7% is the actual growth rate for the fourth quarter, it will mark the first time the index has reported year-over-year growth in earnings since the fourth quarter of 2019. So far, 81% of S&P companies have reported a positive EPS surprise for Q4, on pace for the second-highest percentage of positive reporting surprises since FactSet began tracking this metric in 2008.     4. Trump's World Bank head speaks out on climate change, inequality World Bank president David Malpass being interviewed by yours truly for "Axios on HBO." Against the backdrop of the coronavirus pandemic, World Bank president David Malpass has been a surprisingly outspoken advocate for policies to reduce global warming, rein in economic inequality and use multilateral institutions to fight the worst of the pandemic's impacts. Why it matters: As a nominee of former President Donald Trump and a longtime skeptic of multilateral institutions, many feared that Malpass would weaken the World Bank's work on climate change or make it more "America First" in its orientation. But that hasn't been the case, as he explained on "Axios on HBO." The big picture: Malpass leads one of the world's most powerful financial institutions, whose mission is to reduce global poverty and is often the last resort for countries that are struggling to stay afloat. "We've seen this growing, rising inequality ... it seems like the system we currently have in place is not working," he said during the interview. "There's been less and less capital available for small businesses. And there's been a centralization of the wealth within the various economies." Where it stands: In December, the World Bank raised its target and now expects 35% of its financing to have "climate co-benefits, on average, over the next five years." That's up from 28% in 2019 and an 18% target under Malpass' predecessor, Jim Yong Kim. The Bank also has been a strong supporter of implementing and backing the Paris climate accord, with Malpass telling "Axios on HBO" that the Bank has been "heavily involved in this effort." On inequality, Malpass has been one of the most outspoken critics of the current state of affairs and the way central banks have addressed the issue. "Central banks are buying bonds, which by definition, bonds are issued by people that already have money and they're bought by people that already have money. So the system is set up to to stabilize the upper end." "But it's been hard for the advanced economies to get benefits to people at the at the lower end." Flashback: When Malpass was nominated in 2019, Stewart Patrick, a senior fellow at the Council on Foreign Relations, wrote that Malpass held views "antithetical to the Bank's mission." "He is precisely the wrong person at the wrong time to helm the Bank," Patrick concluded. Kim reportedly left his post three years early because of disagreements over the Trump administration's stance on climate change, including Trump's claims that climate change was a "hoax" and his plans to pull out of the Paris Agreement.     5. It's a good thing Tom Brady won the Super Bowl Reproduced from LPL Financial; Chart: Axios Visuals The Tampa Bay Buccaneers' victory in last night's Super Bowl was good news for investors. Not only does a Tampa Super Bowl victory bode the best for the S&P 500 of any team in the NFL (26.4% gain in the Buccaneers' lone win), a victory for quarterback Tom Brady also is a bullish sign. In Brady's nine previous Super Bowl appearances his victories have meant far better returns for the stock market than his losses.     A message from BlackRock How did COVID-19 shape Larry Fink's annual letter?     Even amid the COVID-19 pandemic, governments, companies and investors accelerated their actions to address climate change during 2020. Larry Fink, BlackRock's Chairman and CEO, discusses how the events of 2020 shaped his annual letter to CEOs.   Thanks for reading! Trivia: Mathematical textbooks show that Africans along the banks of the Nile and 2,000 years before the birth of Christ had calculated the volume of a truncated pyramid and the surface area of a sphere utilizing what two branches of math? Answer: Geometry and trigonometry.   Axios thanks our partners for supporting our newsletters. Sponsorship has no influence on editorial content. Axios, 3100 Clarendon B‌lvd, Suite 1300, Arlington VA 22201   You received this email because you signed up for newsletters from Axios. Change your preferences or unsubscribe here.   Was this email forwarded to you? Sign up now to get Axios in your inbox.   Follow Axios on social media: