Founder & Chief Market Strategist - SAV Markets, SAV Markets

Shyam Devani

Founder & Chief Market Strategist - SAV Markets

Cross Asset Strategy

<p>Since the release of US labour market data yields have slipped. Notable price action has unfolded for only the third time since yields peaked in late March, which indicates lower yields still.</p><p>Additionally, USDJPY has faltered, which is consistent with the signs in fixed income markets.</p><p>But how low is low? Could this just be a short lived and relatively meaningless move down in yields or could we see US 10Y yield below 1.46% and US 30Y yield below 2.15%?</p>

Since the release of US labour market data yields have slipped. Notable price action has unfolded for only the third time since yields peaked in late March, which indicates lower yields still.Additionally, USDJPY has faltered, which is consistent with the signs in fixed income markets.But how low is low? Could this just be a short lived and relatively meaningless move down in yields or could we see US 10Y yield below 1.46% and US 30Y yield below 2.15%?

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

<p>Today we highlight several metrics which provide evidence that risk appetites are improving, <em>not</em> deteriorating. This is a bullish signal for the broad market. Still, we continue to see a mixed market environment, but we remain constructive overall with the S&amp;P 500 holding above short-term support at the 50-day moving average and 4056.</p>

Today we highlight several metrics which provide evidence that risk appetites are improving, not deteriorating. This is a bullish signal for the broad market. Still, we continue to see a mixed market environment, but we remain constructive overall with the S&amp;P 500 holding above short-term support at the 50-day moving average and 4056.

Risk Appetites Improving, A Bullish Sign; Downgrading Technology To Underweight

<p>Is it still the time to be defensive on equities and have a notable allocation in Bonds as was described in the note from 11 May (see <a href="https://www.smartkarma.com/insights/us-equities-time-to-get-defensive" target="_blank" data-smartkarma-citation="insights:51332" rel="noopener">US Equities: Time to Get Defensive</a>)?</p><p>Whichever chart we look at across markets - whether in fixed income, commodities, foreign exchange, or equities - the signs are clear…stay long bonds (Treasuries) in this environment for the short term.</p>

Is it still the time to be defensive on equities and have a notable allocation in Bonds as was described in the note from 11 May (see US Equities: Time to Get Defensive)?Whichever chart we look at across markets - whether in fixed income, commodities, foreign exchange, or equities - the signs are clear…stay long bonds (Treasuries) in this environment for the short term.

Managing Director

Elan Gore

TMI Data Science

TMI Data Science utilizes Natural Language Processing to build custom leading indicators using unstructured data sourced from the global financial, trade & traditional media.  Our proprietary software, TMI Machine, is a text-mining platform designed with the buy-side & capital markets professional in mind, text-mining the global media to discern and quantify nuanced qualitative shifts in press coverage as they apply to macroeconomics, equity indexes/ETFs, commodities, currencies, fixed income & individual equities.  TMI provides custom leading indicators and systematic trading strategies, operating at the nexus of linguistics & statistics drawing on vast experience in investment banking and hedge fund settings in senior quantitative and fundamental roles.  

TMI Data Science was founded by Elan Gore, an award-winning Senior Global Basic Materials Equity Analyst & China Economist with 15 years of experience in North American hedge funds & institutional managers; and Alessandro Porrino, Ph.D., an Algorithmic Trading Analyst and Programmer with 10 years of front-office experience ranging from complex FX option pricing to auto-hedging strategies at Bank of America Merrill Lynch and Standard Chartered.  Mr. Gore holds an MBA in Finance from New York University Stern School of Business, and Mr. Porrino holds a Ph.D. in Systems Engineering from Brunel University London.

Macroeconomics

<p>In last month's <a href="https://www.smartkarma.com/insights/tmi-snapshots-is-a-tight-labor-market-already-slowing-payrolls-growth" target="_blank" data-smartkarma-citation="insights:51144" rel="noopener">TMI Snapshots:  Is a Tight Labor Market Already Slowing Payrolls Growth?</a> published ahead of the April nonfarm payrolls release, we noted a +2.5x STDEV M/M jump in media reports of labor shortages in various iterations (i.e. "tight labor market", "struggling to hire", "hard to find workers" etc.) and a 2-year high in the absolute number of weekly mentions of shortages (roughly 110 unique articles per week at the end of April in US national publications.)  Back in 2018-19, such spikes in reports of labor shortages tended to precede a slowing in payrolls growth; thus we suspected April nonfarm payrolls would come in weaker than expected.</p><p>As we revisit the data ahead of the May payrolls release, we acknowledge the situation is more nuanced for a variety of reasons and alternative employment data points are mixed.  Our labor shortages indicator continued to surge in the first half of May, hitting a record high of +5x STDEVs on May 13 and correcting since to +3x by the end of the month; similarly, the absolute number of trailing 7-day mentions of labor shortages in national US news surged to a new record of &gt;300 unique articles as of May 13 and ended the month at ~150, still above April levels but well off the highs:</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/210/753/original/LABOR_SHORTAGE_REPORTS_MAY.PNG?1622640352" class="editor-image img-responsive" data-smartkarma-image-id="210753"></figure><div class="content-caption">Labor Shortage Reports &amp; General Employment Sentiment vs. Total Private Payrolls <section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/210/756/original/ABSOLUTE_NUMBER_MENTIONS.PNG?1622641122" class="editor-image img-responsive" data-smartkarma-image-id="210756"></figure><div class="content-caption">Absolute Number of Weekly Mentions of Labor Shortages in National US Publications</div></section>
</div>
<div class="content-highlight"><section class="figure">TMI Data Science utilizes Natural Language Processing to build custom leading indicators using unstructured data sourced from the global financial, trade &amp; traditional media. Our proprietary tools text-mine the global media to discern and quantify nuanced qualitative shifts in press coverage as they apply to macroeconomics, equity indexes/ETFs, commodities, currencies, fixed income &amp; individual equities. </section></div></section>

In last month's TMI Snapshots:  Is a Tight Labor Market Already Slowing Payrolls Growth? published ahead of the April nonfarm payrolls release, we noted a +2.5x STDEV M/M jump in media reports of labor shortages in various iterations (i.e. "tight labor market", "struggling to hire", "hard to find workers" etc.) and a 2-year high in the absolute number of weekly mentions of shortages (roughly 110 unique articles per week at the end of April in US national publications.)  Back in 2018-19, such spikes in reports of labor shortages tended to precede a slowing in payrolls growth; thus we suspected April nonfarm payrolls would come in weaker than expected.As we revisit the data ahead of the May payrolls release, we acknowledge the situation is more nuanced for a variety of reasons and alternative employment data points are mixed.  Our labor shortages indicator continued to surge in the first half of May, hitting a record high of +5x STDEVs on May 13 and correcting since to +3x by the end of the month; similarly, the absolute number of trailing 7-day mentions of labor shortages in national US news surged to a new record of &gt;300 unique articles as of May 13 and ended the month at ~150, still above April levels but well off the highs:Labor Shortage Reports &amp; General Employment Sentiment vs. Total Private Payrolls Absolute Number of Weekly Mentions of Labor Shortages in National US Publications

TMI Data Science utilizes Natural Language Processing to build custom leading indicators using unstructured data sourced from the global financial, trade &amp; traditional media. Our proprietary tools text-mine the global media to discern and quantify nuanced qualitative shifts in press coverage as they apply to macroeconomics, equity indexes/ETFs, commodities, currencies, fixed income &amp; individual equities. 

TMI Snapshot:  Did Labor Shortages Continue to Hamper Payrolls Growth in May?

<ul>
<li>While our US employment sentiment indicator continued to improve in April along with robust job openings, our text analytics now see a +2.5x STDEV increase in reports of labor shortages and companies struggling to hire new employees</li>
<li>Excluding reports of frontline worker shortages in March 2020, the last time we saw reports of labor shortages trending at this magnitude was May 2018</li>
<li>On an absolute basis, the number of media reports of labor shortages is back to the higher end of 2018-2019 ranges</li>
<li>In 2018-19, our data saw 3 incidences of &gt;2x STDEV increases in reports of labor shortages; in all cases, these preceded slower payroll growth in subsequent months</li>
<li>In the current episode, media reports focus primarily on labor shortages in the leisure &amp; hospitality sector whereas the previous episode was characterized by skilled labor shortages; nonetheless, Q1 earnings calls highlight widespread labor shortages across most sectors</li>
<li>Even as labor shortages affect nearly all industries, the single largest needle-mover for absolute payroll figures remains leisure and hospitality, which in March comprised 42% of the negative delta in total private payrolls relative to year-ago levels at -2.35M jobs or nearly -15% Y/Y; no other sector comes close in terms of COVID job losses or recovery potential in payroll terms</li>
<li>Given the heavy weighting of leisure and hospitality in private payroll growth at this time, the sector's significant hiring needs suggest that any slowdown in hiring would be followed by wage increases to incentivize unskilled labor to return to the workforce; labor shortages are likely to remain a key feature of the post-COVID recovery, but higher wage elasticity in leisure &amp; hospitality suggest these frictions may be resolved sooner in this key sector with a broadly inflationary outcome</li>
</ul><div class="content-highlight"><p>TMI Data Science utilizes Natural Language Processing to build custom leading indicators using unstructured data sourced from the global financial, trade &amp; traditional media. Our proprietary tools text-mine the global media to discern and quantify nuanced qualitative shifts in press coverage as they apply to macroeconomics, equity indexes/ETFs, commodities, currencies, fixed income &amp; individual equities. </p></div>


While our US employment sentiment indicator continued to improve in April along with robust job openings, our text analytics now see a +2.5x STDEV increase in reports of labor shortages and companies struggling to hire new employees
Excluding reports of frontline worker shortages in March 2020, the last time we saw reports of labor shortages trending at this magnitude was May 2018
On an absolute basis, the number of media reports of labor shortages is back to the higher end of 2018-2019 ranges
In 2018-19, our data saw 3 incidences of &gt;2x STDEV increases in reports of labor shortages; in all cases, these preceded slower payroll growth in subsequent months
In the current episode, media reports focus primarily on labor shortages in the leisure &amp; hospitality sector whereas the previous episode was characterized by skilled labor shortages; nonetheless, Q1 earnings calls highlight widespread labor shortages across most sectors
Even as labor shortages affect nearly all industries, the single largest needle-mover for absolute payroll figures remains leisure and hospitality, which in March comprised 42% of the negative delta in total private payrolls relative to year-ago levels at -2.35M jobs or nearly -15% Y/Y; no other sector comes close in terms of COVID job losses or recovery potential in payroll terms
Given the heavy weighting of leisure and hospitality in private payroll growth at this time, the sector's significant hiring needs suggest that any slowdown in hiring would be followed by wage increases to incentivize unskilled labor to return to the workforce; labor shortages are likely to remain a key feature of the post-COVID recovery, but higher wage elasticity in leisure &amp; hospitality suggest these frictions may be resolved sooner in this key sector with a broadly inflationary outcome
TMI Data Science utilizes Natural Language Processing to build custom leading indicators using unstructured data sourced from the global financial, trade &amp; traditional media. Our proprietary tools text-mine the global media to discern and quantify nuanced qualitative shifts in press coverage as they apply to macroeconomics, equity indexes/ETFs, commodities, currencies, fixed income &amp; individual equities. 

TMI Snapshots:  Is a Tight Labor Market Already Slowing Payrolls Growth?

US 10Y (USGG10YR INDEX)

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TMI Snapshots: Is a Tight Labor Market Already Slowing Payrolls Growth?

While our US employment sentiment indicators continued to improve in April, an outlier +2.5x increase in reports of labor shortages may temporarily...

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