The US labor market is beginning to cool down. China’s inflation is falling

Initial jobless claims jumped to the highest level since February, an indication that unemployed people need more time to find work. These are the first signs that the labor market is beginning to “cool down,” which in turn will influence the Fed’s monetary policy to slow the pace of rate hikes. The end of the tightening cycle is close. The steep inversion of the Treasury yield curve is a harbinger of recession, which also raises the possibility that the US Federal Reserve will soon take a pause.

According to analysts, after underestimating the structural uptrend in inflation that began in 2017 amid an emerging labor shortage, the ECB now appears to be overestimating inflationary pressures. The slight decline in euro area inflation to 10% in November from 10.6% in October, largely due to lower oil prices, suggests that the worst of the inflation-induced shocks may be coming soon. So a 50 basis point rate hike on December 15 to 2.5% on the main refinancing rate makes sense. But it does not make sense to keep raising rates in 2023 because the winter recession in Europe will be disinflationary. Falling private consumption will play a big role in this downturn. Germany’s 2.8% monthly drop in retail sales in October may be a harbinger of recession.

Crude oil prices hit a near-one-year low on Thursday. Oil prices will continue to fall as President Vladimir Putin’s administration shows no serious signs of responding to the price cap, leading traders to believe that oil prices will eventually trade close to the $ 60-a-barrel limit.

Asian markets were mostly down yesterday. Japan’s Nikkei 225 (JP225) decreased by 0.40%, Hong Kong’s Hang Seng (HK50) ended the day up by 3.38%, and Australia’s S&P/ASX 200 (AU200) ended the day down by 0.75%.

According to the National Bureau of Statistics of China, the Producer Price Index (PPI) remained unchanged compared to the previous month. November’s Consumer Price Index (CPI) fell to 1.6% year-on-year from 2.1%. This data suggests that economic growth continues to weaken. Growth in the world’s second-largest economy has slowed this year, largely under the influence of uncompromising COVID-19 restrictions.

Australia’s economy is likely to slow in the second half of 2023. Analysts project the Australian economy to contract from 2.6% in 2022 to 1.0% in 2023. Household consumption is projected to decline from about 2% in the first half of 2023 to nearly zero in the second half. Inflation will be 3% lower in 2024 than the RBA’s current forecast of 3.25%, allowing the RBA to cut rates by about 100 basis points in late 2023 and early 2024. The sharp slowdown in economic growth in 2023 will be due in part to the RBA continuing to raise interest rates in the first half of 2023 as wage growth and inflation remain high.