Markets Weekly October 7, 2023

Hello my friends, today is October 7th, my name is Joseph and this is Markets Weekly. This week we're going to talk about three things. First, we're going to talk about how the Fed really seems to have pulled off a soft landing. Secondly, let's talk a little bit about what's happening in Japan, where many market participants seem to think that maybe the Japanese authorities intervened in the market the past week to support the Japanese yen. And lastly, let's talk a bit about crude oil. Now crude oil has been on a tear and it seemed like it was going to breach $100, but then it tumbled, bigly this week, by almost 10%.

大家好，今天是10月7日，我是Joseph，欢迎来到本期的《市场周报》。本周我们将会谈论三个问题。 首先，我们将谈论美联储似乎成功实现了一次软着陆。 其次，让我们稍微谈谈日本的情况，许多市场参与者似乎认为，日本当局上周曾干预市场以支持日元。 最后，让我们聊一下原油。最近原油市场一直走强，看起来可能会突破100美元，但本周却大幅下跌了近10%。

Okay, starting with the soft landing. Well, first off, let's talk about just what a soft landing is. So if you rewind back to what was happening the past two years, inflation was high and the Fed was raising rates. Now, Chirpal had a memorable performance at Jackson Hall, where he basically told everyone he's going to high grades and there would be some pain. Higher interest rates, slower growth and softer labor market conditions will bring down inflation. They will also bring some pain to households and businesses. These are the unfortunate costs of reducing inflation.

好的，先从“软着陆”开始说起。首先，让我们来谈谈什么是“软着陆”。如果回顾过去两年所发生的事情，通胀率很高，而美联储一直在提高利率。现在，切普尔在杰克逊霍尔有过一个令人难忘的表现，基本上告诉大家他要采取紧缩货币政策，并且会带来一些痛苦。较高的利率、较慢的经济增长和较软的劳动力市场条件将降低通胀水平。它们也会给家庭和企业带来一些痛苦。这些是减少通胀的不可避免的代价。

Now according to traditional economic theory, the way that you get inflation under control is you high grades a lot, you sold the economy down in the process, unemployment increases, but because there's less demand in the economy, inflation falls. So that was the playbook. And that's really what the Fed was trying to get at. They keep saying over and over again that they were looking for the unemployment rate to go higher because they were operating under that mental model.

根据传统经济理论，控制通货膨胀的方法是通过高利率来实现，但这样做会导致经济下滑，失业率上升，但由于经济需求减少，通货膨胀会下降。这就是运作方式。而美联储一直在努力实现这个目标。他们一再强调要提高失业率，因为他们正遵循这种思维模式。

Now many people over the past year have been telling the Fed to stop hiking rates because hey, inflation really is slowing down. Now people could point to goods inflation, which is definitely slowing, or they could point to shelter, which is rent, which is definitely by many models and by actual rents appears to be slowing. But despite all that data, the Fed was really persistent about continuing to high grades. In fact, they invented this new measure, Cada, Core Services, X Housing, which basically focused on all services, excluding housing, and said that, well, this inflation here, it's still humming along above 4%. And so we got to keep hiking because the stuff is really sticky.

现在，在过去的一年里，很多人都告诉美联储停止加息，因为通胀确实在放缓。人们可以指出商品通胀确实在放缓，或者可以指出住房租金确实根据许多模型和实际租金情况正在放缓。但尽管有所有这些数据，美联储仍然坚持继续提高利率。事实上，他们还创造了一项新指标，称为Cada，即核心服务指数，排除了住房，并表示，嗯，这里的通胀仍然保持在4%以上。所以我们必须继续加息，因为这些东西真的很顽固。

Now this past week, we had the non-form payroll data. Now the non-form payroll data this week was unambiguously very, very good. It was excellent. So job growth, the past month, was of 330,000, which was about double expectations. Now I know many people in social media would look at this and try to pick up this, they can do that, talk about adjustments and so forth. But listen, those guys have been saying the same thing for over a year and they've been totally wrong all the way in. I'm beginning to think that they are never going to get it.

这个过去的一周，我们有了非农就业数据。这周的非农就业数据非常非常好，毫无疑问。它非常出色。所以就业增长上个月达到了33万，相当于预期的两倍。我知道社交媒体上很多人会看到这一点并试图批评，他们可以这么做，谈论调整等等。但是听着，这些人一年多来一直在说同样的话，而他们一直完全错误。我开始觉得他们永远不会明白。

Now the job support is strong. And it's strong in two ways. It's not just the number of jobs created, but it's also that wage growth slowed down. So wage growth, basically what the Fed has been focusing on, what the Fed has been trying to get to, thinking that the only way they could get wage growth to slow down was through unemployment. Well, they were wrong. Apparently wage growth is slowing and the economy continues to create jobs. That is basically the mythical soft landing. The economy continues to grow, inflation continues to fall. There doesn't seem to be any economic distress.

现在就业支持是强劲的。它以两种方式强劲。不仅仅是创造的就业岗位数量多，而且工资增长也有所减缓。所以工资增长，基本上是美联储一直关注的重点，也是美联储一直试图实现的目标，认为只有通过失业率才能降低工资增长。然而，他们错了。显然，工资增长在减缓，经济继续创造工作机会。这基本上是传说中的软着陆。经济继续增长，通胀持续下降。看起来没有任何经济困境。

Now with this soft landing in motion, now that really tells the Fed that they probably don't need to hike anymore because the thing that they were afraid of the most, the last thing that they were focusing on, core services, ex-housing, well, with wages coming down, that's pretty much going to slow down significantly going forward as well.

现在随着这种平稳的降落正在进行，这真的告诉了美联储，他们可能不再需要加息了，因为他们最害怕的事情，也是他们关注的最后一件事，即除去住房外的核心服务，现在随着工资下降，这也将显著减缓前进的步伐。

So I know initially that I had told everyone that I thought the Fed would hike one more time this year in accordance with their dot plot. But based on this new information, I'm getting to think that they are done for the year. And not just because of that. Notice that the 10 year yield, so long period of interest rates have continued to rise. They've risen significantly over the past few years. Now that's going to have a pretty market slowing effect on the economy. Because when the Fed adjusts the overnight rate, say raising the Fed funds rate up or down a little bit, that doesn't really matter because no one really borrows at the overnight rate. But when you're pushing the 10 year yield up, well, that really does affect economic activity. So in effect, even though the Fed has done nothing the past couple of weeks, in effect, financial conditions have tightened. So I think that as things are, I'm guessing the Fed is done here.

所以，最初我告诉大家我认为美联储会按照他们的点阵图今年还会加息一次。但基于这个新的信息，我越来越倾向于认为他们今年就此收手了。这不仅仅是因为这个原因。请注意，10年期国债收益率，也就是长期利率一直在上涨。在过去几年里，它们已经大幅上升。这将对经济产生相当强烈的放缓效应。因为当美联储调整隔夜利率时，比如微调联邦基金利率，这并没有太大影响，因为几乎没有人以隔夜利率借款。但当你推高10年期国债收益率时，这确实会影响到经济活动。所以实际上，即使美联储过去几周没有采取任何行动，金融条件也在紧缩。因此，我认为在目前情况下，我猜测美联储就此收手了。

Now it doesn't mean that really the inflation battle is definitively over. You still have a couple of things to look out for. One of course is there's always a prospect of a rise again in commodity prices. And secondly, economic growth in theory should also push up inflation. Now we don't see that happening, but in theory, as economic economies grow, you can see demand coming back. And again, potentially inflation re-accelerating later on, keeping in mind that the deficit continues to be very large and supportive of growth. But those are things to keep an eye on in the coming months at the moment though. I think things look really good.

现在并不意味着通胀战役已经彻底结束。您仍需要注意一些事情。首先，商品价格有可能再次上涨。其次，从理论上讲，经济增长也应该推高通胀。目前我们并未看到这种情况发生，但从理论上说，随着经济增长，需求可能会回升。另外，可能会使通胀再次加速。需要记住的是，财政赤字仍然非常大，并且对经济增长起到了支持作用。但在接下来的几个月里，这些是需要密切关注的事情。不过，目前我认为情况看起来非常好。

Now secondly, let's talk about what's going on with Japan. So let's just level set for a moment. So Japan, of course, we all know them as a country that had many years of low inflation and sometimes deflation. So as inflation swept up, swept across the world, central banks throughout the developed world raised raised aggressively, Fed, ECB, Bank of England, and so forth.

现在，让我们来讨论一下日本的情况。首先，让我们简单了解一下现状。大家都知道，日本是一个多年来一直面临低通胀甚至通缩问题的国家。当全球范围内的通胀浪潮席卷而来时，发达国家的中央银行进行了积极的加息，包括美联储、欧洲央行和英国银行等。

Japan, even though inflation in Japan has also risen and is comfortably above their target and has been for some time, the Bank of Japan has steadfastly refused to raise rates. In fact, at the moment, they are still in negative interest rate regime. What they did do though was they did slightly adjust their yield curve control target for their 10-year JGBs so that it was wider. So in the beginning, they were saying the 10-year JGB yield cannot go above 50 basis points. And then a few months ago, they widened it, allowing it to go as high as 1%. Now that was one adjustment that they made.

尽管日本的通货膨胀率也上升并稳定地超过他们的目标已经有一段时间了，但日本银行坚决拒绝提高利率。实际上，目前他们仍处于负利率体制。然而，他们确实对10年期日本政府债券的收益率曲线进行了微调，使其范围更广。最初，他们说10年期日本政府债券收益率不能超过50个基点。几个月前，他们扩大了这一范围，允许收益率提高到1%。这是他们做出的一个调整。

Now this so far has been causing problems with the Japanese currency because as everyone's else's interest rates have risen, you can understand that many people in Japan, well, maybe they don't want to have negative interest rates. So they would rather move their money to the US, for example, where you could get 5% interest rates and a money market fund since the Fed has high rates so much. So over the past several months, we've seen significant depreciation of the yen. The UK has basically tried to stop this sometimes by intervening, but it really hasn't been effective. So over the past few weeks, as the 10-year yield in the US has steadily risen, and as the Fed has telegraphed the prospect of at least higher for longer, while the yen has steadily depreciated.

现在，这种情况一直在给日本货币带来问题，因为随着其他国家的利率上升，可以理解为许多日本人也许不想要负利率。所以他们宁愿把钱转移到美国，那里可以获得5%的利率和货币市场基金，因为美联储的利率很高。因此，在过去几个月里，我们看到日元大幅贬值。英国有时会试图通过干预来阻止这种情况，但实际上效果不明显。所以在过去几周里，随着美国10年期收益率稳步上升，以及美联储传达至少长时间内保持较高利率的前景，日元逐渐贬值。

And this past week, it breached a key psychological barrier, the 150 yen barrier. Upon breaching that, it immediately slapped back and strengthened significantly. Now rumor was that that was the red line that the Bank of Japan was watching. Okay, so technically it's administrative finance that does intervention, that makes a call. So anyway, the Japanese authorities saw that and they intervened. Strangely enough, there's also many reports afterwards suggesting that actually they did not intervene and also note that the yen promptly weakened again, not too long after that shock. So it seems that what we're looking at right now is that the market is really nervous about the yen. They know that obviously selling the yen has been a winning trade, but they also know that there is some kind of red line somewhere where if they cross it, the Japanese authorities would jump in and intervene. It could be that this enough is going to keep the 115 line at least as a soft season for now. Since everyone is scared at the moment they cross that, the Japanese authorities would jump in and then they'll have big losses.

而在过去的一周中，日元突破了一个重要的心理关口，即150日元关口。突破后，它立即反弹并显著增强。现在传言是，这是日本银行监控的红线。好吧，从技术上讲，是行政财政进行干预，作出决定。总之，日本当局看到了这一点，他们进行了干预。令人奇怪的是，在此之后还有许多报告表明他们实际上没有进行干预，并且请注意，日元在那次冲击之后很快又贬值了。所以看起来现在我们正在看到的是市场对日元非常紧张。他们知道显然抛售日元一直是盈利的交易，但他们也知道在某个地方有某种红线，如果他们越过了它，日本当局将会介入干预。这足以使得115日元至少在今后一段时间内成为一个软性季节。由于每个人都害怕一旦越过这条线，日本当局会介入干预，然后他们会遭受巨大损失。

But at the end of the day though, no matter how much they intervene, it's never going to be enough because administrative ventures are too large and the Japanese authorities know that as well. So right now, the whisper is that sometime next year, maybe the first half of next year, they're going to actually exit their negative interest rate policy and maybe potentially even get rid of yield curve control. Basically they're going to move towards normalizing policy a bit late compared to everyone else, but they're going to get there.

然而，不管他们干预多少，到最后，这永远不会足够，因为行政尝试太大了，日本当局也知道这一点。所以现在，有传言说，明年的某个时候，可能是明年上半年，他们将实际退出负利率政策，甚至可能废除收益率曲线控制。基本上，他们会比其他所有人晚一点，但是他们会赶上的，朝着正常化政策迈进。

And that way of basically normalizing policy is really the only way that they can sustainably make sure the yen does not depreciate uncontrollably. This again is going to pose some challenges to many people in Japan as well because Japan has had zero or negative interest rates for a very long time. And you can imagine that there are probably a lot of people holding JGBs. Well, you can make it to Japan holds a ton of them, but you can also think of other maybe financial sector entities like banks and insurers, insurance companies holding them that they might have a significant market losses. So it's going to be an interesting experiment, but it's something that I think they could handle and they definitely seem to be doing it slowly.

这种基本政策规范化的方式确实是他们唯一可持续保证日元不会无法控制地贬值的方法。这对日本的许多人来说又将带来一些挑战，因为日本已经有很长时间实行零利率或负利率。你可以想象，在持有日本政府债券的可能有很多人。日本国内持有大量政府债券，但也可以考虑其他金融部门实体如银行和保险公司持有政府债券的情况，他们可能会遭受巨额市场损失。这将是一个有趣的实验，但我认为他们能够处理并且显然正在缓慢地进行。

Now note that in the past few weeks, as the JGB yields rose, the Bank of Japan was always in there buying to make sure things were orderly. I don't think they were pushing against the level in so much as making sure that this was going to be an orderly move higher. And so far, it looks like they've been doing this successfully.

请注意，在过去的几周里，随着日本国债（JGB）收益率的上升，日本银行一直在进行购买操作，以确保市场秩序。我认为他们并不是在对抗市场水平，而是确保这是一个有秩序的上涨过程。到目前为止，这种策略看起来是成功的。

Okay, now let's talk. Let's go to our last topic, oil. So over the past few weeks, I've basically beginning with Saudi Arabia's strong suggestion that they were going to adjust their output in order to, I guess, put a floor on oil prices. Oil has been well supported and has surged higher. Now it all seemed like oil was really inevitably going to reach $100. It seemed to be a lot of momentum behind it, but this week suddenly it tumbled. I oil tumbled about almost 10%. And it happened pretty suddenly.

好的，现在我们开始谈论吧。我们来讨论一下最后一个话题，石油。在过去几周里，从沙特阿拉伯强烈表示他们将调整产量的建议开始，石油价格一直得到支持并上涨。似乎石油价格不可避免地要达到100美元的水平。它似乎有很多势头背后支持着，但这周突然出现了逆转。石油价格下跌了将近10%。而且下跌发生得相当突然。

Now again, when you look at market moves like that, it's always hard to know what was behind it. And so people tell stories. Now I think there's a couple of popular stories here that I think makes sense to me. So I'll share. Well, first of all, it seems like demand, global demand maybe is weaker than expected. One data point for this is gasoline inventories in the US. It seems like gasoline inventories were highly unexpected, suggesting that there's less demand for gasoline, which in turn could suggest less demand for oil. And in related to this, though, there's also some thought that maybe global demand for oil is slowing in part due to rising interest rates.

现在，当你看到市场的变动时，想知道其背后的原因总是很困难。因此，人们编造故事来解释。现在我认为有几个常见的故事在这里对我来说是有道理的。所以我要分享一下。首先，似乎全球需求可能比预期要弱。一个支持这一观点的数据是美国的汽油库存。看起来汽油库存的增长出乎意料，这表明对汽油的需求较少，从而可能意味着对石油的需求也较少。与此相关的是，有一种观点认为全球对石油的需求减缓，在某种程度上是因为利率上升。

So as the US 10 year year old goes higher, that actually has global impacts. So sovereign bonds throughout the world are strongly connected. So when you have a major, major market like the US trading market yields going higher, that's pushing up global yields in the Euro zone in Japan, everywhere in the world. In a sense, it's like a global tightening of financial conditions. And the thing is, well, the US economy is pretty strong right now. That's not the case in many other aspects, many other parts of the world. We've heard many times that Germany, for example, doesn't seem so great. And we also see, let's say the economy in China doesn't seem like that great too. So as global financial conditions are tightening, that could push some countries into a recession, and which would obviously suggest lower oil demand.

随着美国10年期国债收益率的上升，这实际上对全球产生了影响。因此，全球各地主权债券之间存在着强烈的关联。所以，当像美国这样一个重要的、庞大的市场的收益率上升时，这就会推高全球范围内的欧元区、日本以及其他国家的收益率。从某种意义上说，这就像是全球金融环境的收紧。然而，问题在于，虽然美国经济现在相当强劲，但其他很多方面、很多地区并非如此。就拿德国来说，我们经常听到它似乎并不如人们所想象的好。而且我们也看到，比如中国的经济也并不像预期中那样出色。因此，随着全球金融环境收紧，这可能会推动一些国家陷入经济衰退，从而导致石油需求下降。

Now close to related to this is that as US yields have gone up, the dollar has strengthened significantly. Now oil is priced in dollars. So even so as we look at oil, let's say $80, $8, $90, $90, if you're someone say in Japan, you're looking at it in terms of yen. So when oil prices go higher and your currency is depreciating, well, you are hit with a double shock here. In yen terms, in foreign currency terms, oil is becoming a lot more expensive. And that I think is potentially reaching a point where we have some demand destruction.

现在与此相关的是，随着美国收益率的上升，美元已经大幅度增强。现在石油的定价是以美元计算的。因此，即使我们看石油的价格是80美元、8000日元、90美元、9000日元，假如你是日本人，你会以日元来计算。所以，当石油价格上涨，而你的货币贬值时，你就是遭受了双重打击。以日元计算，以外币计算，石油变得更加昂贵。我认为这可能已经达到了我们开始出现一些需求下降的点了。

Now one other thing I'll note is that a lot of the people who play in the oil market, they are trend followers, CTA's. So a CTA's business model is basically momentum. So they buy what's going up and they say what's going down. And so when you have something like oil, which has basically gone straight up for the past few weeks, I can imagine that there's a lot of people there who are there just following the trend. And these moves can be volatile. You can maybe get too much leverage, become very nervous. And at the slightest hint of some potential distress, you could get out to try to save your profits and you could have the whole thing tumbled down.

现在还有一件事我要注意的是，在石油市场上玩的很多人都是趋势跟随者，也就是CTA。所以CTA的商业模式基本上就是动量。他们买涨的，卖跌的。所以当你有像石油这样最近几周一直涨的东西，我能想象会有很多人只是在跟随趋势。而这些变动可能非常大。你可能会过度杠杆，变得很紧张。一旦出现一丝潜在的困扰，你可能为了保住利润就会出局，导致整个市场崩溃。

Now going forward, I have no idea what oil prices would be. I think I'll leave that to other people. They're a good story saying that we could have geopolitical risk and so forth. So we'll see. But that I think remains another potential upside risk for inflation going forward. Commodity prices could again re-accelerate notwithstanding what in retrospect this week could just be a correction.

前景来看，我真的不知道油价会怎样。我想我会把这个问题留给其他人来解答。他们总是有很多说法，比如可能存在地缘政治风险等等。所以我们拭目以待吧。但我认为，这仍然是通胀前进中的另一个潜在上行风险。虽然从事后看，这周可能只是一个修正，但商品价格可能再次加速上涨。

Okay. So that's all I prepared for today. Now if you like what I'm producing, remember to like and subscribe. And if you're interested in hearing my most recent thoughts, check out my blog, vidguy.com. And if you're interested in learning more about how my kids operate, check out my online courses at centralbanking101.com. Talk to you all next week.

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