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February’s Jobs Data At 8:30

February’s jobs data is released at 8:30.   How close are analyst’s projections?  How much will January’s statistics be revised?  The current spate of volatility that has upended market based monetary policy expectations which has sent the 2-year Treasury up 100 bps in 35 days was the result of an exceptional strong January report released about 5 weeks ago.

Analysts are expecting a 225k and 215k increase in nonfarm and private sector payrolls, respectively, a 3.4% unemployment rate, a 0.3% increase in average hourly earnings, a 34.6 hourly work week and a 62.4% labor participation rate.

As commented yesterday, Bloomberg writes payroll growth has topped estimates for 10 consecutive months, the longest streak in “decades.”

Moreover, the newswire reports that beginning in April last year, the median forecast in each survey fell short of the government’s initial estimate of payroll growth by an average of 100,000 a month—the most going back on record since the 1998 inception of this statistic.  Ahead of tomorrow’s February’s jobs report, the projection is for a 225,00 increase.

Yesterday outplacement firm Challenger, Gray and Christmas released its monthly job survey.  Most regard this data as second or third tier, the statistics offered a different perspective of the labor market.

According to Challenger, layoffs quintupled in February from a year earlier and were the largest at the start of any year since 2009, led by technology companies.

Specifically, Challenger states thew were 77,770 jobs cuts last month that brought the two-month total to 180,713 jobs, the most for any January-February time period since 2009.  Approximately one third of layoffs occurred in tech companies.

Additionally weekly jobless claims exceeded expectations and for the first time since early January surpassed 200,000.  It is dangerous to form any conclusions from one or two data points but some believe [maybe wishfully thinking] the unemployment rate will soon rise, taking pressure off of the Fed and monetary policy.

Because of the data, short term Treasury yields slid sharply with the two year Treasury sliding to a 4.88% yield.  Two days ago it broached 5.10%.  The volatility is intense, perhaps suggesting other issues in the market including the dearth of liquidity and levered one sided trades.

Changing topics, financials were hit hard yesterday as Silicon Valley Bank  (SVB) was forced to sell essentially all of its securities that were held “available for sale” incurring an approximate $1.8 billion after tax loss to meet demand for depositors leaving the bank.  SVB shares fell as much as 63%.

According to SVB’s website, it does business with nearly half of all venture capital back startups and 44% of venture backed technology and health companies that went public last year.

These sectors have been ravaged as rate hikes enacted to combat inflation have tanked valuations and force companies to search for cash.  In other word, there is a massive cash burn.  What does this suggest about the health of the technology sector?

Rhetorically asking, will Silicon Valley banks suffer a similar fate of Texas banks when the oil sector crashed several years ago?  A major difference however is the potential issues are about the return of demand deposits versus loan portfolio.

As widely reported crypto bank Silvergate was forced to liquidate as it could not meet the demand for the return of depositor monies because of the implosion of cyber currencies.  It was not an asset issue but rather a liability issue.

Do the headlines suggest there is something more serious occurring in the tech space?

Last night the foreign markets were down.  London was down 1.71% Paris down 1.18% and Frankfurt down1.30%.  China was down 1.40%, Japan down 1.67% and Hang Seng down 3.04%.

Futures are relatively flat, but this could change radically given the significance of the 8:30 data. The 10-year is up 16/32 to yield 3.85%.  The two-year is yielding 4.79%.  The volatility is incredible as two days ago this key benchmark was yielding 5.08%.

SVB Bank is down another 45% as prominent venture capitalists are advising startups to withdrawal their money creating a run on the bank.  Bloomberg indicates other financials are only down about 1% believing the issues are contained.

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Kent Engelke

Chief Economic Strategist Managing Director

The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. This material is being provided for informational purposes only. Any information should not be deemed a recommendation to buy, hold or sell any security. Certain information has been obtained from third-party sources we consider reliable, but we do not guarantee that such information is accurate or complete. This report is not a complete description of the securities, markets, or developments referred to in this material and does not include all available data necessary for making an investment decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. If you would like to unsubscribe from this e-mail distribution, please reply to this e-mail and indicate that you wish to unsubscribe in your response.