Gasoline Demand Growth To Slow This Year On EV Growth In China,US

Economic

Commodity

Summary:

Global petrol demand growth could halve in 2024, squeezing second-half refinery margins, analysts said, driven by a shift to electric cars in China and the US and a return to normal consumption after last year's bounce following Covid-19.

In the lowest growth since 2020, demand is likely to rise 340,000 barrels per day (bpd), to stand at 26.5 million bpd this year, says consultancy Wood Mackenzie, down from growth of 700,000 bpd last year, as China nears the point of peak transport fuel demand and the US has surpassed it.

"Penetration of electric vehicles (EVs) has been increasing in US and China," said Woodmac analyst Sushant Gupta.

"For this year Chinese demand will grow by only 10,000 bpd, due to higher EV uptake."

Consultancy Rystad Energy pegs global gasoline demand at about 26 million bpd in 2024, up about 300,000 bpd from growth of about 700,000 bpd in 2023, fuelled by the consumption boom after the pandemic, said analyst Mukesh Sahdev.

China, once the world's driver of gasoline demand, is expected to account for more than half of all EV sales this year, the International Energy Agency (IEA) has said.

Gasoline consumption by the world's largest crude importer is set to grow by about 1.3%, or about two million tons, to 165.1 million metric tons (3.8 million bpd) this year, forecasts by a research arm of China National Petroleum Corp (CNPC) show.

The research arm of China's biggest refiner, Sinopec, expects gasoline demand to rise by 1.7%, or about three million tons, to stand at 182 million tons this year.

As falling prices spur demand, the share of electric cars sold this year could reach 45% in China, about 25% in Europe and more than 11% in the US, the IEA estimates.

By comparison, booming car sales, along with high economic growth and low EV penetration, are driving gasoline demand in India and Indonesia.

India's petrol consumption will hit a fresh record of 39.2 million tons (908,000 bpd) in the year to March 2025, up about 5% from 37.2 million tons in the year to March 2024, government estimates showed.

Margin pressure

US gasoline consumption fell to about 376 million gallons per day (8.94 million bpd) in 2023 after hitting a record 392 million gallons in 2018, according to the US Energy Information Administration.

Demand in 2024 is expected to be flat, analysts said.

As a result, US refining margins are expected to stay under pressure after the peak summer driving season, Woodmac and Rystad analysts said.

In Europe, gasoline demand will grow by 50,000 bpd or 2.3% in 2024 to 2.19 million bpd, in line with recent years, FGE said.

Stagnant European petrol demand and rising competition from Nigeria's new Dangote refinery, the largest in Africa and Europe that could add 280,000-300,000 bpd of gasoline to global balances, will put European refining margins under pressure, Woodmac said.

Gasoline margins across the US and Asia have gained 85% this year, to stand at about US$29 from a barrel of WTI crude on May 1 and 29% and about US$13 from a barrel of Brent crude on April 30, respectively, on expectations of robust summer demand, LSEG data showed.

Margins gained strength early this year due to scattered refinery outages in Asia and the US, while higher freight costs due to attacks on Red Sea shipping and Russian energy infrastructure supported European gasoline markets.

Eurobob gasoline was worth around US$23 from a barrel of Brent crude on May 1, up from the US$19.67 average in April last year, the data showed.

Source:Reuters

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

You understand and acknowledge that there is a high degree of risk involved in trading. Following any strategies or investment methods may lead to potential losses. The content on the site is provided by our contributors and analysts for information purposes only. You are solely responsible for determining whether any trading assets, securities, strategy, or any other product is suitable for investing based on your own investment objectives and financial situation.

Add to Favorites

FOREX.com

Forex

Economic

The game for USD/JPY changed last week. The likely intervention from the Bank of Japan (BOJ) on at least one occasion to support the Japanese yen, coupled with a large reversal in US bond yields, means the successful strategy of buying dips may have run its course near-term. Downside risks look to be building. And based on the ugly reversal on the weekly USD/JPY chart, and how quickly US economic data looks to be deteriorating, those risks could easily materialise into something far more significant than that already seen.

US economic exceptionalism questioned

Traders have become accustomed to being impressed by the resilience of the US economy, continuing to power ahead while the rest of the developed world struggles to avoid recession. It's been that way for years, assisted by stimulatory fiscal policy and dynamism the US economy is renowned for. However, the weight of expectation and sustained tighter financial conditions may be finally starting to take its toll on the world's largest economy. Long before Friday's soft non-farm payrolls report and ISM non-manufacturing PMI survey for April, there were sign US economy was starting to come back to the chasing pack.

Even though it's largely comprised of assumptions and estimates and therefore prone to large revisions, the advanced Q1 GDP report undershot even the most pessimistic market forecast, printing at 1.6% annualised after seasonal adjustments. The separate flash S&P Global US services PMI – released ahead of the ISM survey – was also soft, providing a decent signal of what was to come.

US economic data coming off fast

Combined with other data misses and economist views remain optimistic, it's seen Citi's US economic surprise index fall into negative territory for the first time since early January, hitting levels not seen since February 2023.

USD/JPY: Bullish Case Eroding Fast As US Economic Data Rolls Over_1

While the reading implies only a small majority of releases are missing relative to consensus, it's the speed of decline since the middle of April that is eye-catching, exceeding what was seen in the final quarter of last year when the Federal Reserve pivoted from rate hikes to cuts.

Markets now favour two Fed rate cuts in 2024

As the data has started to rollover, market pricing for rate cuts in 2024 has built again, reversing some of the significant hawkish repricing seen since the start of the year. You can see the Fed funds futures curve between May and December now has 38 basis points of cuts priced this year, up from 22.5 at the start of May.

USD/JPY: Bullish Case Eroding Fast As US Economic Data Rolls Over_2

US bond yields decline

The decline in US short-end rates has mechanically dragged US bond yields lower with two, five and 10-year Treasuries down around 24, 27 and 23 basis points respectively from the recent highs.

USD/JPY: Bullish Case Eroding Fast As US Economic Data Rolls Over_3

Yields spreads between the US and Japan compress

That's important for USD/JPY given how influential US bond yields can be on its overall direction, seeing spreads between the US and Japan for those tenors compress since the start of May.

USD/JPY: Bullish Case Eroding Fast As US Economic Data Rolls Over_4

USD/JPY weekly chart warns of trend reversal

Much like the near-term fundamental picture even before the threat of BOJ intervention is considered, the technical picture for USD/JPY is also one of growing downside risks.

USD/JPY: Bullish Case Eroding Fast As US Economic Data Rolls Over_5

The outside candle on the weekly chart was only marginally away from printing a key outside week, seeing the pair tumble from highs above 160 to key support just below 152.

With the uptrend in RSI broken, you get the sense this week is important for the longer-term trajectory for USD/JPY: not only is a retest of 151.95 on the cards, but a break would also take the price through uptrend support dating back to December last year, opening the door to a far larger downside flush below 150.

There's also no top-tier US economic data to move the pair around, leaving only Fedspeak along with three and 10-year Treasury note auctions as the main events for traders to consider.

Selling USD/JPY rallies preferred

The risk-reward for going short around these levels is not compelling despite the darkening fundamentals and technical picture, making a break of downside support or selling rallies at higher levels a higher probability play this week.

Those with patience could wait for a possible push back towards 154.50, a level USD/JPY did plenty of work either side of post the suspected BOJ intervention episode last Monday. Entry around this level with a stop above for protection offers decent risk-reward for those favouring downside.

USD/JPY: Bullish Case Eroding Fast As US Economic Data Rolls Over_6

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

Cohen

Economic

Commodity

Gold rate today: The release of disappointing US non-farm payroll data last week, coupled with the ongoing weakness in the US dollar rates, has led to a rebound in gold prices today. The gold futures contract for June 2024 expiry on the Multi Commodity Exchange (MCX) opened on a positive note this morning at ₹70,849 per 10 gm. It quickly reached an intraday high of ₹70,984 per 10 gm. In the international market, the COMEX gold price is hovering around $2,320 per troy ounce, while the spot gold price is around $2,310. Experts in the commodity market attribute this rise in gold prices to the weak US dollar and the disappointing US non-farm payroll data. The latter has particularly impacted the US dollar, renewing the US Fed's concerns over the US economy, especially inflation.

US dollar rate in focus

Speaking on the reasons fueling gold prices today, Anuj Gupta, Head of Commodity & Currency at HDFC Securities, said, "Gold rates today bounced back as the US dollar price has come under pressure after the weak US non-farm payroll data. In the US, non-farm payroll data was released on Friday last week. The US Labour Department reported 1.75 lakh job creations in April 2024, whereas the market estimated 2.43 lakh new jobs. This has renewed the concerns regarding the US economy, especially the US inflation that the US Fed recently raised during the FOMC meeting."

Anticipating further upside in gold price in the near term, Kaynat Chainwala, Senior Manager-Commodity Research at Kotak Securities said, "COMEX Gold prices edged higher on Monday as a softer-than-expected US jobs report spurred expectations of an earlier rate cut, pushing market bets on a September rate cut to 80% and increasing speculation of a second rate cut in the November or December meeting. Gold prices witnessed a second weekly decline as easing geopolitical tensions, expectations of fewer rate cuts for the year, and a more positive outlook for global economic growth dampened haven demand. However, the Organisation for Economic Co-operation and Development (OECD) has revised its outlook for the global economy upward, to 3.1% this year and 3.2% in 2025, from October forecast of 2.9% and 3% respectively, citing stronger-than-expected growth in the US and China. Gold may see some recovery supported by fears of escalating geopolitical tension in the Middle East and a softer dollar."

Xi Jinping's Europe trip in focus

Turning to the Chinese President Xi Jinping's Europe visit, Anuj Gupta of HDFC Securities noted, "There's also a sentimental boost from the Chinese market. The market is anticipating significant outcomes from the Chinese President's Europe trip, given the ongoing geopolitical tension between Ukraine and Russia, now in its third year, and a fresh crisis in the Middle East. Additionally, the market is hopeful for positive business outcomes for the dragons, considering China's significant role in the global metal market."

Gold price today: Important levels to watch

With his extensive knowledge and experience, Anuj Gupta of HDFC Securities provided valuable insight, "MCX gold rate today has immediate support at ₹70,500 per 10 gm whereas it is facing resistance at ₹71,200. The gold price may touch ₹71,600 per 10 gm mark on breaching this resistance. In the international market, COMEX gold price has major support placed at $2,300 per troy ounce while facing a hurdle at $2,330 per troy ounce." This analysis, backed by his expertise, can serve as a useful guide for investors and traders in their decision-making process.

Source:mint

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

ING

Commodity

Energy

Economic

Energy - Saudi OSPs rise

After falling a little more than 7.3% last week due to easing geopolitical tensions, ICE Brent has started the new trading week on a stronger footing, opening higher. This comes after Saudi official selling prices (OSPs) for June loadings, where OSPs for all grades and to all regions (except for the US) were increased. The Saudi's flagship Arab Light into Asia was increased by US$0.90/bbl MoM to US$2.90/bbl over the benchmark amid a tightening in the physical market this quarter.

Iraq and Kazakhstan have agreed on a compensation plan for their overproduction since the start of the year. According to OPEC, Iraq and Kazakhstan's cumulative overproduction between January and March totalled 602k b/d and 389k b/d respectively. Both countries have set out plans to fully make up for these volumes by the end of the year.

Despite recent weakness in oil prices, speculators increased their net long in ICE Brent by 24,942 lots over the last reporting week to 320,773 lots as of last Tuesday. This move was predominantly driven by fresh speculative buying. However, given further price weakness since last Tuesday, current positioning will likely be lower.

Apart from the usual weekly releases, there is not a significant amount on the energy calendar this week. The EIA will publish its latest Short-Term Energy Outlook on Tuesday. This will include the EIA's latest views on the global oil market, and its latest forecast for US oil and gas production for the remainder of this year and 2025. On Thursday, China will release its first batch of trade data for April, including oil imports.

Agriculture – Global coffee exports rise

The latest data from the International Coffee Organization (ICO) shows that global coffee exports rose to 13m bags in March, up 8.1% YoY. This includes Arabica exports of 7.4m bags (up 9.7% YoY) and Robusta exports of 5.6m bags (up 6% YoY). Cumulative exports for October 2023 to March 2024 rose 10.4% YoY to 69.2m bags.

CFTC data shows that money managers reduced their net short in CBOT wheat by 28,318 lots to 47,866 lots as of 30 April, the least bearish position since the week ending 1 August 2023. The fall was led by short covering with the gross short decreasing by 29,095 lots. Speculators also reduced their net short in corn by 20,506 lots to 218,040 lots, a move largely driven by short covering. There was little change in speculative positioning in CBOT soybeans. Speculators increased their net short by just 222 lots to 149,236 lots.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

Samantha Luan

Economic

Across much of the developed world, one of the most dependable drivers of economic growth is faltering.

For decades, the rapid inflow of migrants helped countries including Canada, Australia and the UK stave off the demographic drag from aging populations and falling birth rates. That’s now breaking down as a surge of arrivals since borders reopened after the pandemic runs headlong into a chronic shortage of homes to accommodate them.

Canada and Australia have escaped recession since their Covid contractions, but their people haven’t with deep per-capita downturns eroding standards of living. The UK’s recession last year looked mild on raw numbers but was deeper and longer when measured on a per-person basis.

All up, thirteen economies across the developed world were in per-capita recessions at the end of last year, according to exclusive analysis by Bloomberg Economics. While there are other factors — such as the shift to less-productive service jobs and the fact that new arrivals typically earn less — housing shortages and associated cost-of-living strains are a common thread. Global Housing Shortages Are Crushing Immigration-Fueled Growth_1

Global Housing Shortages Are Crushing Immigration-Fueled Growth_1

So is the immigration-fueled economic growth model doomed? Not quite.

In Australia, for instance, the inflow of roughly one million people, or 3.7% of the population, since June 2022 helped plug a chronic shortages of workers in industries such as hospitality, aged care and agriculture. And in the UK — an economy near full employment — arrivals from Ukraine, Hong Kong and elsewhere have made up for a lack of workers after Brexit.

Skills shortages across much of the developed world mean more, not fewer, workers are needed. Indeed, the US jobs market and economy are running hotter than many thought possible as an influx of people across the southern border expands the labor pool — even as immigration shapes up as a defining issue in the November presidential election.

Global Housing Shortages Are Crushing Immigration-Fueled Growth_2

While the US has seen a widely-covered surge in authorized and irregular migration, the scale of the increase actually pales in comparison to Canada’s growth rate. For every 1,000 residents, the northern nation brought in 32 people last year, compared with fewer than 10 in the US.

Put another way: Over the past two years, 2.4 million people arrived in Canada, more than New Mexico’s population, yet Canada barely added enough housing for the residents of Albuquerque.

Canada’s experience shows there’s a limit to immigration-fueled growth: Once new arrivals exceed a country’s capacity to absorb them, standards of living decline even if top-line numbers are inflated. The Bank of Nova Scotia estimates a productivity-neutral rate of population growth is less than a third of what Canada saw last year, which would be more in line with the US pace.

So even as that record population growth keeps Canada’s GDP growing, life is getting tougher, especially for younger generations and for immigrants such as 29-year-old Akanksha Biswas.

Biswas arrived in Canada in the middle of 2022, just as per-capita GDP started plunging amid the start of the post-pandemic immigration boom and the Bank of Canada’s aggressive interest-rate tightening cycle.

The former Sydneysider moved to Toronto for what she believed would be a better life with a lower cost of living and greater career prospects. Instead, she faced higher rent, lower pay and limited job opportunities.

“I actually had a completely different picture in my mind about what life would be like in Toronto,” said Biswas, who works in advertising. “Prices were almost similar, but there’s a lot more competition in the job market.”

Canada’s working-age population grew by a million over the past year but the labor market only created 324,000 jobs. The upshot: The unemployment rate rose by more than a full percentage point, with young people and newcomers again the worst hit.

Global Housing Shortages Are Crushing Immigration-Fueled Growth_3

Biswas spends more than a third of her income on the monthly rent bill of C$2,800 ($2,050), splitting the cost with her partner. She’s dining out less and making coffee at home instead of going to the cafe. She’s also pushing back plans to have children or buy a home.

“I don’t see my future here if I want to raise a family,” she says.

Global Housing Shortages Are Crushing Immigration-Fueled Growth_4

While millions of Americans also face a housing affordability crisis, their real disposable income growth has stayed above the rise in home prices over much of the past two decades. Not so in Canada. The median price for homes in Toronto is now C$1.3 million, nearly three times that of Chicago, a comparable US city.

The chronic underbuilding of homes and decades of continuous rises in prices has drained funds from other parts of the economy toward housing. That lack of investment in capital — combined with firms’ focusing instead on expanding workforces due to cheaper labor costs — has driven down productivity, which the Bank of Canada says is at “emergency” levels.

Growing anxiety around the housing crunch forced Prime Minister Justin Trudeau’s government to scale back on its immigration ambitions, halting the increase of permanent resident targets and putting a limit on the growth of temporary residents for the first time.

Canada’s goal is now to cut the population of temporary foreign workers, international students and asylum claimants by 20%, or roughly by half a million people, over the next three years. That’s expected to slash the annual population growth rate by more than half to an average of 1% in 2025 and 2026.

Meantime, Biswas and her partner are calling it quits on their Canada experiment and moving to Melbourne, where they reckon they can afford a two-bedroom apartment for less than what they paid for a one-bedroom space in Toronto.

But life won’t be easy Down Under either as many of the same strains are playing out, with Australia facing its worst housing crisis in living memory.

Building permits for apartments and town houses are near a 12-year low and there remains a sizable backlog of construction work, largely due to a lack of skilled workers. The government has tried to plug the labor supply gap by boosting the number of migrants, only to find that’s making the problem even worse.

Just like Canada’s experience, the ballooning population is not only exacerbating housing demand, it’s also masking the underlying weakness in the economy.

GDP has expanded every quarter since a short Covid-induced recession in 2020, yet on a per-capita basis, GDP contracted for a third consecutive quarter in the final three months of 2023 — the deepest decline since the early 1990s economic slump.

In absolute terms, Australia’s per-capita GDP is now at a two-year low — a “material under-performance” versus the US and an outcome that could spur higher unemployment, according to Goldman Sachs Group Inc.

Angst about the lack of housing, soaring rents and surging home prices has prompted Anthony Albanese’s ruling Labor government to crack down on student visas.

“It has been proven over many many years that there’s a positive to Australia from a high migration intake,” said Stephen Halmarick, chief economist at the nation’s biggest lender Commonwealth Bank of Australia. “But in the very near term, you can see that it’s putting upward pressure on rents, house prices and clearly that’s a concern for many and the demand for some services is seeing sticky inflation.”

Neighboring New Zealand is grappling with a similar headache.

The government there last month made immediate changes to an employment visa program, introducing an English-language requirement and reducing the maximum continuous stay for a range of lower-skilled roles, citing “unsustainable” net migration. The changes were part of a plan to “create a smarter immigration” that is “self-funding, sustainable and better manages risk,” Immigration Minister Erica Stanford said in the statement at the time.

Calvin Jurnatan, 30, moved to Sydney from Indonesia in December to study construction design as a gateway to becoming a permanent resident. Months later, he still doesn’t have a job. One reason is that migrants face long and expensive processes to get their qualifications recognized.

Global Housing Shortages Are Crushing Immigration-Fueled Growth_5

Jurnatan’s failure to find a part-time role in construction comes despite the sector being high on the skills shortage list, especially after the government set an ambitious goal of building 1.2 million new homes by 2029. That target looks increasingly unachievable, industry players say.

Frustrated, Jurnatan has stopped looking for construction jobs and is instead scouting the retail sector where roles are easier to find. He’s doing some freelance photography to eke out a living and says he wouldn’t recommend Australia to his family and friends back home.

“People are struggling,” he said. “I’m struggling. It’s not cheap and everyone needs to work really, really hard here. So, when people call me and ask, ‘hey, how is living in Sydney right now?’ I tell them the truth.”

Independent think tank the Committee for Economic Development of Australia found in a recent report that the hourly wage gap between recent migrants and Australian-born workers increased between 2011 and 2021. On average, migrants who have been in Australia for 2 to 6 years earn more than 10% less than similar Australian-born workers.

“There are big costs from not making the best use of migrants’ skills,” according to CEDA’s senior economist Andrew Barker.

Over in Europe, its largest economy, Germany, also saw a per-capita recession that comes against a backdrop of rising political tensions over a large number of asylum seekers, housing shortages and a misfiring economy. Bloomberg Economics analysis shows that France, Austria and Sweden are also among those who have suffered per-capita recessions.

Global Housing Shortages Are Crushing Immigration-Fueled Growth_6

In Britain, too, record levels of migration have begun to weigh on the economy. A technical recession in the second half of last year saw headline GDP slip 0.4%, yet the slump was longer and deeper when adjusted for population. Per-capita GDP has contracted 1.7% since the start of 2022, falling in six out of the seven quarters and stagnating in the other.

With Britain close to full employment and over 850,000 dropping out of its workforce since the pandemic, immigration has helped employers fill widespread worker shortages, not least in the health and social care sectors.

“A very good bit of the growth that we saw through the 2010s was down to net migration,” said Paul Johnson, director of the Institute for Fiscal Studies. “In terms of the overall size of the economy, it’s been really important. What’s really hard to say is what impact the net immigration has had on the per-capita numbers.”

Global Housing Shortages Are Crushing Immigration-Fueled Growth_7

UK GDP has expanded 23% since the start of 2010. On a per-person basis, growth in output has been far less impressive at 12%.

Over the same period, the population has surged, growing an estimated 11%, or almost 7 million, to 69 million. The Office for National Statistics expects it to hit close to 74 million in 2036 in updated population projections that now predict faster growth. Over 90% of the increase in the population expected between 2021 and 2036 will come from migrants, it said in January.

“If we hadn’t had such high immigration, housing would be cheaper than it is at the moment, possibly quite significantly,” Johnson said. “But the converse of that is that the problem has been that we simply haven’t built enough houses, given what we know is happening to the size of the population.”

The UK’s post-Brexit immigration system aimed to stop cheap labor from Europe and prioritize high-skilled workers. However, the government allows some foreign workers easier access if they are in shortage-hit sectors.

Global Housing Shortages Are Crushing Immigration-Fueled Growth_8

“Those shortages really are pretty much always caused by poor paying conditions, although the employers will tell you it’s all skills,” said Alan Manning, labor market economist at the London School of Economics. “Then they start complaining about ‘we can’t afford higher wages and so we have to have migrants so we can keep our existing wages.’”

The growing pressures on housing and stretched public services are prompting a backlash among voters against Rishi Sunak’s ruling Conservative government ahead of a general election expected later this year. It has hemorrhaged support to the right-wing populist Reform UK party, which is promising “net zero immigration,” while the Tories are polling in single digits among 18- to 24-year-olds who put housing as their second-most important issue.

The opposition Labour party has promised a “blitz” of planning reforms to unlock construction, as well as restraint on immigration as it heads toward what’s widely anticipated to be a sweeping election victory.

Global Housing Shortages Are Crushing Immigration-Fueled Growth_9

A shortage of properties for the bigger population has sent house prices to over eight times average earnings in England and Wales, and 12 times in London. In 1997, they were 3.5 times earnings and four times, respectively. A lack of supply has also caused rental costs to rocket at a record pace in the last 12 months, worsening a cost-of-living crisis for young Britons especially.

Official figures show that 234,400 homes were added to the UK housing supply in 2022-23, well below the levels needed to meet huge demand and the 300,000-a-year target the Tories promised to reach by the mid-2020s at the last election.

Global Housing Shortages Are Crushing Immigration-Fueled Growth_10

“If we’re looking to grow GDP by throwing more people at it, then we need more housing,” said Peter Truscott, chief executive of FTSE 250 housebuilder Crest Nicholson.

However, UK housebuilders and the government have struggled to boost construction of new homes to the levels needed. A restrictive planning system has been used by Nimbys — “not in my back yard” — to block local developments and efforts to overhaul the system by the ruling Conservatives were scuppered by concerns of a backlash in their rural southern heartlands.

“We have a completely utterly dysfunctional planning system in the UK,” said Truscott. “Forty years in house building, it’s never been so bad, and the rate of decline in planning has been quite incredible over the last couple of years.”

While encouraged by Labour plans, he cautions that it will take two parliamentary terms to make a difference as supply chain constraints will prevent an instant “flood” of new homes.

The longer voters in the UK, Australia, Canada and similar economies see their living standards go backwards, the more their opposition to rapid immigration programs will harden. A lasting fix requires government policies, especially in housing, that convince both would-be migrants and the existing populations of the benefits of immigration-led economic growth.

Source：Bloomberg

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

Cohen

Economic

Doubling down on his contrarian view, Citi chief U.S. economist Andrew Hollenhorst told Bloomberg TV on Thursday that he sees a hard landing. In fact, inflation and the labor market will weaken enough that the Federal Reserve will cut benchmark rates four times this year—far more than the one or two cuts Wall Street expects.

His warning proved prescient as the Labor Department's payroll report the following day showed that the economy added 175,000 jobs in April, down sharply from the blockbuster increase of 315,000 in March and well below the 233,000 gain that economists had predicted.

On Thursday, Hollenhorst said other data have been signaling weakness in the labor market, including surveys of consumers and businesses that say jobs are getting harder to find, companies are less eager to hire, and employees are feeling more worried about keeping their jobs.

To be sure, data in recent weeks have offered mixed signals on the economy. The latest employment cost index rose more than expected, suggesting a strong job market. Meanwhile, the first-quarter GDP report showed growth cooled more sharply than anticipated. But that was due largely to a wider trade deficit and slower inventory restocking, while consumer demand remained robust.

But Hollenhorst is convinced there won't be a soft landing, and said financial markets are starting to move away from that hope as well.

“The reason I think the Fed's going to see enough to cut is because we're more toward the hard landing end of the spectrum,” he told Bloomberg TV.

Meanwhile, the Fed won't wait for both inflation and the labor market to weaken before cutting rates, he noted. It only needs to see one or the other.

When asked if his view for four rate cuts this year also means that they wouldn't provide enough economic stimulus to stave off a hard landing, Hollenhorst said almost every monetary policy cycle has played out that way.

“We're in the higher-for-longer stage of the policy cycle,” he explained, noting that stubborn inflation has prevented rates from coming down. “The next stage of the policy cycle is a weakening of the labor market. Once it starts gradually weakening, it then weakens more sharply. I think that's exactly what's playing out now.”

In February, even amid blowout jobs reports, Hollenhorst was warning about a harding landing and told CNBC that he expected a recession by the middle of this year.

Looking past the upbeat headline jobs numbers, he said there were signs of softness, such as the number of hours worked and the number of full-time jobs dropping.

Source: Fortune

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

FastBull Featured

Data Interpretation

At 8:30 a.m. (ET) on May 3, the U.S. Bureau of Labor Statistics released its latest report on nonfarm payrolls:

U.S. nonfarm payroll employment increased by 175,000 in April, lower than the expected 243,000 and the previous 315,000 (revised).

The U.S. unemployment rate came in at 3.9% in April, slightly above the expected and the previous 3.8%.

U.S. average hourly earnings rose by 3.9% over the past 12 months, compared to expectations of 4% and the previous 4.1%.

Total nonfarm payroll employment increased by 175,000 in April, lower than the average monthly gain of 242,000 over the prior 12 months. The change in total nonfarm payroll employment for February was revised down by 34,000, to +236,000, and the change for March was revised up by 12,000, to +315,000. Job growth slowed in the leisure and hospitality, construction and government sectors. Employment declined in motor vehicle and parts dealers and temporary help services sectors. Job gains occurred in health care, transportation and retail trade.

The unemployment rate was 3.9% in April, with 6.5 million unemployed, little changed from the previous reading, and the rate has remained in the 3.7%-3.9% range since August 2023.

The labor force participation rate remained unchanged at 62.7% in April, and the employment-to-population ratio was little changed at 60.2%. The measures have shown little change over the year. The number of people employed part-time for economic reasons, at 4.5 million, changed little in April.

In April, average hourly earnings for all employees on private nonfarm payrolls increased by 7 cents, or 0.2%, to $34.75. Over the past 12 months, average hourly earnings have increased by 3.9%. It was the lowest growth rate since June 2021.

The latest nonfarm payroll data suggests that the U.S. labor market is now slowing down somewhat after strong growth earlier in the year. The market's reaction shows that the current non-farm payrolls boosted expectations for a rate cut. However, the data's soft across the board from the Fed's perspective, which is what really matters here and an unemployment rate of 3.9% is not something disastrous. This indicates an economy that is not declining dramatically, but it definitely indicates a looser labor market. The Fed is looking for data points that pull them back away from the long period of tightening. The one caveat would be that the labor market reports are notoriously fickle and what we see this month might not be what we turn around and see next month. It gives the Fed some hope, but it does not establish the trend for them.

U.S. Treasury yields and the U.S. dollar both fell and stock index futures rose after the report was released. Swap contracts resumed expectations for two 25bp rate cuts by the Fed in 2024. Traders expected the Fed's first rate cut to occur in September compared with November previously. The likelihood of a September cut has increased to over 50%.