Joe scares the stock market

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Employment has grown quite well

USA: employment has grown well, unemployment – too

The number of people employed in the US non-agricultural sector increased by 311 thousand in February, of which 265 thousand in the private sector and most in the service sector (245 thousand). The negative dynamics were in the IT (-25 thousand) and transport/logistics (-21.5 thousand) sectors, but the leisure, medicine/education/trade industries more than compensated for the reductions. The unemployment rate increased from 3.4% to 3.6%, although the share of employed remained virtually unchanged at 60.2%, but labor force participation increased slightly (62.5%). So far, these are only local changes within the framework of ordinary fluctuations.

The markets were very happy about something else: the growth of hourly wages slowed down to 0.2% mom and 4.6% yoy. But it’s not so simple here, the dismissal of higher-paid workers and the hiring of less well-paid ones can quite objectively affect the average pay. If we look at the salaries of non-managerial production personnel, then in February, on the contrary, the growth accelerated to 0.5% mom and 5.6% YoY. However, at the same time, the average number of hours worked decreased, which somewhat adjusted the total wage fund (-0.1% mom) after its sharp rise in January (+1.2% mom). The annual growth of the wage fund has slowed down to 7.4% YoY, but it is still much higher than the pre-crisis ~4%, and the slowdown is rather due to the base effect. The increase in three months was 1.8%, which is slightly higher than the average observed in the last six months (1.7%), i.e. the short-term trend remains the same.


The report is generally ambiguous, on the one hand, it gives certain hints of a slowdown, but the number of employed is actively growing, and the slowdown in the growth of s/p is largely due to the cuts of higher-paid workers. The data can be interpreted quite broadly, the report is rather neutral for making a decision on the rate, but still allows the Fed not to rush back to the 50 bp step.

Yellen continues to spend

Yellen continues to spend “stash”, but there are still reserves

The Fed paused this week – the securities portfolio has practically not changed, in 4 weeks the reduction of the portfolio of government bonds is $61 billion, but the chronic shortage of MBS is only $15 billion reduction in 4 weeks. If Powell is on pause, then Yellen cannot do this and continued to spend “cash” from accounts, adding new dollars to the system: the deposits of the Ministry of Finance in the Fed decreased by $39 billion to $311 billion in a week, in 4 weeks the Ministry of Finance poured $184 billion into the financial system from its account in the Fed. It can add up to $50-100 billion more in March, but in April it will begin to actively withdraw through taxes (~$250..300 billion) – it will be interesting to see how the markets behave.

The banks returned dollars to the Fed through the reverse repo mechanism, the volume of which increased by almost $60 billion to $2.56 trillion in a week, because, despite the operations of the Ministry of Finance, there was a little less liquidity. Banks use reverse repos with the Fed to hedge – the inversion of the debt curve has intensified again. At the same time, corporate bond spreads were rather declining, although the “rout” of bank stocks on Thursday may indicate that there is a clear underestimation of risks.

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Biden’s budget, which is $5.5 trillion in tax exemptions, is extremely negative for the stock market, because it will decently reduce capital inflows to the stock market, but it is unlikely to be missed by Republicans in Congress. Ahead of a stormy showdown with the debt ceiling and the budget… The annual CDS on the US national debt continues to grow (76 points).

The US Treasury will continue to add dollars to the system, but in April it will absorb a lot, which may add headaches to the markets along with a shake-up of banks if the Fed does not smooth the situation.

And what does Joe offer us?

US President Joe Biden has proposed a new budget plan for 2024

What is important for us there?

▫️Increase in corporate tax to 28%. Well, thank you, of course, that it is not up to 35% as it was before 2017, but it is still very unpleasant.

▫️Increase in the tax on baibek from 1% to 4%. They say there is nothing to return the value to shareholders here — invest in the development of business and jobs. It seems logical, but there are businesses that are in a cycle of peak development, and according to all norms of corporate finance, they need to give money to shareholders.

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▫️The income tax abroad will be raised from 10.5% to 21%. Companies in the USA export services abroad and earn worldwide. Now they will pay “like at home”.

The tax on the rich will be raised from 8% to 25% with a fortune of $100 million. The richest stratum — 0.01% of all taxpayers — will suffer the most.

Cancellation of benefits for oil and gas companies and Big Pharma. For neftegaz, this means literally “pay taxes”, and for pharmaceutical companies, that many medicines can be made available to Medicare, which will lead to negotiations to reduce their cost.

So far, this is only a Biden Administration proposal, but the market reacted accordingly yesterday.


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