job openings

Rates Spark: Enough to hold rates down

The US 10yr yield remains below 4%. However that's not been validated by the data as of yet. Friday's payrolls report can be pivotal here, but based off consensus expectations the market will remain without validation from the labour market. Also, the Fed's FOMC minutes due on Wednesday are unlikely to be as racy as Chair Powell was at the press conference.

 

Sub 4% on the US 10yr to hold at least till we see Friday's payrolls outcome

The 13 December FOMC meeting outcome remains a dominating impulse for the rates market. The US 10yr yield shot to below 4% on that day, and has broadly remained below 4% since. It was briefly below 3.8% over the holiday period, but now at closer to 4% it is looking for next big levels. The thing is, validation of the move of the 10yr Treasury yield from 5% down to 4% came from the Fed, but not so much from the macro data. We can reverse engineer this and suspect that the Fed has either seen something, or fears t

Rates on the Move: Dollar Rates Set to Rise, Sterling Rates Poised to Fall - US Labour Market Data Holds the Key!

Rates on the Move: Dollar Rates Set to Rise, Sterling Rates Poised to Fall - US Labour Market Data Holds the Key!

ING Economics ING Economics 31.05.2023 08:33
Rates Spark: Sterling rates most likely to fall, dollar rates more likely to rise US labour market data could trigger another leg higher in dollar rates but we doubt their euro peers will follow, barring a much stronger inflation print today. Hawkish BoE pricing is vulnerable to a pushback.   US labour market indicators take centre stage The start of the week is proving a constructive one for bonds. It seems the feel-good factor felt by markets, after the White House and House leader McCarthy reached a deal to raise the debt ceiling over the weekend, was short-lived. The deal is due to be voted on today by the lower chamber and later this week by the Senate. We think expectations are for the bill to pass, which also means the market-moving potential of a successful vote is limited. The same cannot be said of any delay on procedural grounds, although more would be needed to shake the market’s optimism.   Instead, the focus should now focus on more fundamental matters for interest rates valuations, namely this week’s two labour market releases. Today sees the publication of the ‘JOLTS’ job openings report, followed on Friday by the non-farm payroll report (which also includes wages). Rate cut expectations last month received a shot in the arm when job openings unexpectedly dropped but payroll data continues to go from strength to strength and we expect investors will be wary of chasing bond yields lower into the report as a result.   We expect investors will be wary of chasing bond yields lower into Friday's job report  
Inflation Dynamics and Market Pricing: Assessing the UK's Monetary Outlook.  Job Openings Decline Continues in the US

Inflation Dynamics and Market Pricing: Assessing the UK's Monetary Outlook. Job Openings Decline Continues in the US

ING Economics ING Economics 31.05.2023 08:39
It is in the UK that the local swap curve is diverging most from the central bank’s message. Swap currently imply another 100bp of tightening will be implemented before year-end. We do not disagree that core inflation has been disappointingly slow to decline in the UK but betting on another four 25bp hikes this year requires a strong opinion on inflation dynamics which we think few in the market actually have.   This means current pricing is unlikely to be maintained. Markets should also be on alert for a pushback by Bank of England (BoE) officials against market pricing. Only Catherine Mann is due to speak today. As the more hawkish member, she is the least likely to disagree with elevated rates but her pushback would be all the more potent.   Forward EUR rates have been relatively immune to the recent re-pricing higher in USD and GBP rates   Today's events and market view Chinese PMIs released today missed expectations on both manufacturing and services, although the latter remains at a healthy level above the 50 expansion/contraction line.   French, Germany, and Italian CPIs for the month of May will be released today. In addition to yesterday’s Spanish prints, this means over 70% of the eurozone-wide print, which is only published tomorrow, will be available to markets today. As is increasingly the case, focus will be squarely on service inflation.   After the sharp re-pricing in BoE hike expectations Catherine Mann’s speech will be closely watched, although, as the most hawkish member on the MPC, we don’t see her as the most likely member to push back against the nearly 100bp of further hikes priced by the curve.   In the US, the decline in job openings is expected to continue, albeit at a more modest pace than last month. Details of the report, such as a worsening of the quits rate, will be closely watched for hints of a further softening of the labour market into Friday’s non-farm payroll release.
AUD Faces Dual Challenges: US CPI Data and Australian Labor Market Statistics

GBP/USD Holds Strong in Face of Weak Statistics: Assessing Volatility, Rate Hikes, and Market Reactions User

InstaForex Analysis InstaForex Analysis 05.07.2023 09:03
The GBP/USD currency pair was traded with low volatility on Tuesday but still managed to move upwards, while the euro currency stood still and decreased more than it grew. Thus, even on a completely empty Tuesday, the pound sterling found reasons to start moving north again.   The price has re-fixed above the moving average and is still very close to its local maximums, which also coincide with the annual maximums. The British currency still cannot correct down properly, which is especially visible in the 24-hour timeframe. Occasionally, there are downward corrections on the 4-hour timeframe, but in most cases, they are purely formal.   The logic of the movements needs to be improved. Two weeks ago, when the Bank of England unexpectedly raised the rate by 0.5% for many, the pound did not grow. But yesterday, when it was a holiday in the States, it added about 40-50 points. The British economy is still weak and is holding out with the last of its strength not to slide into a recession.   US GDP exceeds forecasts by 0.7% and shows a value of +2% q/q. The Bank of England's rate continues to rise but is still lower than the Fed's. The British regulator can raise the rate several times but will likely stay within the Fed's rate. All this suggests that even if the dollar doesn't have strong reasons to grow now, it certainly has no reasons to fall. However, in most cases, we continue to observe the pair's growth. Only business activity indices in the manufacturing sectors can be highlighted for the first two days of the week. In the US and UK, the indices fell synchronously for June and have long been below the "waterline" of 50.0. Again, the pound did not have an advantage over the dollar due to macroeconomic statistics.     Thursday and Friday promise to be "stormy"! The week's most important events are concentrated in its last two days. Today, of course, the Fed's minutes will be published. In the European Union and Britain, the second estimates of business activity indices for June will become known, but all these are secondary data. It is unlikely that the Fed's minutes will surprise traders who are already confident in a rate hike in July, as well as after Jerome Powell's five speeches over the past weeks, in which he laid everything out. Therefore, the main movements are planned for Thursday and Friday, when the ISM, ADP, unemployment benefit claims, the number of job openings, NonFarm Payrolls, and the unemployment rate will be released in the US.   As we can see, almost all reports are related to the labor market, which the Fed continues to monitor closely, and which has a priority for the regulator and the market. However, even if the reports are disastrous (which is currently hard to believe), the Fed will not change its plans to raise the rate.   And for the GBP/USD pair, it doesn't matter at all. The pound grows for a reason and without. If statistics from overseas turn out to be weak, it will merely get a new reason to grow against the dollar. If the statistics from the US turn out to be strong, we will see a new pullback down, a maximum of 100 points, and the Fed's position on the rate will not change. Thus, the market's local reaction could be significant.   In the medium term, these reports will not affect the situation in the market. The average volatility of the GBP/USD pair over the last 5 trading days is 94 points. For the pound/dollar pair, this value is "medium." Therefore, on Wednesday, July 5, we expect movement within the range limited by levels 1.2612 and 1.2800. The Heiken Ashi indicator's reversal down signals a possible new downward movement wave.    
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US crude surges above 50-DMA as Fed minutes reveal hawkish stance

Ipek Ozkardeskaya Ipek Ozkardeskaya 06.07.2023 08:18
US crude jumps above 50-DMA  Minutes from the Federal Reserve's (Fed) latest policy meeting were more hawkish than expected. The minutes revealed that some officials preferred another 25bp hike right away instead of a pause. Almost all of them said that additional hiking would likely be appropriate, and the forecasts showed that they also expect mild recession.     The minutes came to confirm how serious the Fed is in further tightening monetary conditions, and boosted the Fed hike expectations. The US 2-year yield came very close to 5%, the stocks fell, but very slightly. The S&P500 closed the session just 0.20% lower, while Nasdaq 100 gave back only 0.03%. The US dollar gained however, the EURUSD slipped below its 50-DMA, as the Eurozone services PMI fell short of expectations. The June number still hinted at expansion, but the composite PMI slipped into the contraction zone for the first time since January, hinting that activity in Eurozone is slowing because of tightening monetary conditions in the Eurozone as well. On the inflation front, the producer prices fell 1.5% y-o-y in May, the first ever deflation since February 2021. The expectation for the 12-month inflation in EZ fell to 3.9% in May. It's still twice the ECB's 2% policy target, but it's coming down slowly. And the trajectory is certainly more important than the number itself.     Moving forward, further opinion divergence will likely appear along with softening data, but the ECB will continue hiking the rates because officials will be too afraid to stop hiking too early. And as the economic picture worsens, the credit conditions become tighter, the cheap loans dry up and the post-pandemic positivity on peripheral countries fade, we will likely see the yield spread between the core and periphery widen. And the latter could have a negative impact on the single currency's positive trajectory against the US dollar.     Due today, the ADP report is expected to reveal that the US economy added around 228K new private jobs in June, while the JOLTS is expected to have slipped below 10 mio job openings in May.      By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank  
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FX Daily: Hawkish Fed Minutes and the Impact on Data Expectations

ING Economics ING Economics 06.07.2023 09:26
FX Daily: Hawkish Fed minutes raise the bar for data disappointment Yesterday’s release of the June FOMC minutes gave very few reasons to doubt the Fed’s determination to keep raising rates. In a way, the bar for data disappointment and consequent dovish repricing may now be higher. Still, expect a hit to the dollar if the ISM services fall into contractionary territory. Job openings and ADP payrolls will also be watched.   USD: Growth and jobs under the microscope The narrative that emerged from the minutes of the June FOMC meeting fell unequivocally on the hawkish side of the spectrum. The summary of opinions confirmed some divergence within the committee, as some members would have favoured a hike already in June, but accepted a pause and signalled instead more tightening via the new dot plot projections. “Almost all” participants thought more tightening was likely this year. There was also an acknowledgement of ongoing firm GDP growth and high inflation, with core inflation, in particular, showing no tendency to ease as of yet this year. The Fed also noted that credit remains available to high-rated borrowers, but that lending conditions had tightened further for bank-dependent borrowers. Still, the risk of a credit crunch was deemed modest. All in all, the minutes offered no reason to doubt the Fed will go ahead with a July hike (85% priced in) unless data points firmly in the opposite direction on the economic and inflation side. The hawkish minutes, however, may have further raised the bar for disappointing data to cast doubt on further tightening. Today, the ISM services figures for June will be closely watched, as last month’s print (50.3) surprised sharply on the downside. Consensus is expecting a rebound to 51.2, while another surprise drop could take the index into contractionary territory – where the ISM manufacturing has been for the past eight months. Expect any surprises on the ISM release to drive most of the dollar reaction today, but markets will also look at some labour data, in particular, the JOLTS job opening figures for May and the ADP payrolls for June. The dollar has drawn some strength from the hawkish FOMC minutes, which have so clearly pointed to more tightening, that it will probably take some substantial downside surprise for markets re-consider their expectations. With this in mind, the dollar's reaction to today’s data may not prove particularly long-lived, especially if tomorrow’s payrolls continue to point to a tight jobs market and keep a post-July hike on the table.    
Strong Jobs Data Spurs Fed Rate Hike Expectations, Pressures Equities

Strong Jobs Data Spurs Fed Rate Hike Expectations, Pressures Equities

Ipek Ozkardeskaya Ipek Ozkardeskaya 07.07.2023 08:52
Jobs surprise.  497'000 is the number of private jobs that the US economy added last month. 497'000. The number of quits rose to 250'000. But happily, the job openings fell by almost half a million, and more importantly for the Federal Reserve (Fed) – who is fighting to abate inflation and not necessarily jobs, the sector that saw the biggest jobs gains – which is leisure and hospitality which accounted for more than 230'000 of the jobs added – also saw the sharpest decline in annual pay growth. The pay for this sector's workers grew 7.9% last year, down from 8.4% printed a month earlier. But that detail went a bit unheard, and under the shadow of the stunning 497'000 new jobs added. And the too-strong ADP report that, again, hinted at a too-resilient US jobs market to the Fed's very aggressive rate hikes, ended up further fueling the Fed rate hike expectations. The US 2-year yield spiked above 5%, and above the peak that we saw before the mini banking crisis hit the US in March, while the 10-year yield took a lift as well, and hit 4%, on indication that, recession doesn't look around the corner... at least if you follow the US jobs numbers.  So today, the official US jobs data could or could not confirm the strength in the ADP figures, but we are all prepared for another month of strong NFP data, and lower unemployment. If anything, we could see the wages growth slow. If that's the case, investors could still have a reason to see the glass half full and bet that the US economy could achieve the soft landing that it's hoping for.     Equities pressured.  The S&P500 and Nasdaq fell yesterday as the US yields spiked on expectation that the Fed won't stop hiking rates with such a strong jobs data, as such a strong jobs market means resilient consumer spending, which in return means sticky inflation.   Other data confirmed the US' economy's good health as well. ISM services PMI showed faster-than-expected growth and faster-than-expected employment, and slower but higher-than-expected price growth in June. If we connect the dots, the US manufacturing is slowing but services continue to grow, and services account for around 80% of the US economic activity, so no wonder the US jobs data remains solid and consumer spending remains resilient, and the US GDP growth comes in better than expected, and we haven't seen that recession showing up its nose yet.   But the darker side of the story is, this much economic strength means sticky inflation, and tighter monetary conditions, and the dirty job of pricing it is done by the sovereign markets. And many investors think that when there is such a divergence of opinion between stock and bond traders, bond traders tend to be right.   But at the end of the day, the stock market's performance  will depend on how much pain the Fed will put on the Wall Street from the balance sheet reduction. If the Fed just continues hiking the rates and do little on the balance sheet front, it will only hit Main Street, and there will be no reason for the equity rally to stall. Voila.    By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank  
Pound Sterling: Short-Term Repricing Complete, But Further Uncertainty Looms

European Markets React to US Rating Downgrade and Economic Concerns

Michael Hewson Michael Hewson 02.08.2023 08:22
European markets set to open lower after US rating downgrade     We saw a negative start to August for European markets with the DAX leading the way lower, having only put in a new record high the day before, after poor manufacturing PMIs and disappointing earnings prompted profit taking.   Yesterday's weakness appears to have been prompted by concern that the economy is a little bit weaker than perhaps people would like, raising concern for earnings growth heading into the second half of the year. US markets also finished the day lower, although closing well off the lows of the day with the Dow managing to eke out a gain. US yields also finished the day higher, on the rising realisation that rates may well have to stay at current levels for quite a while yet.     This profit taking has continued overnight after Fitch downgraded the US credit rating to AA+ from AAA, while simultaneously boosting demand for haven assets, with Asia markets falling sharply, and which looks set to translate into a sharply lower European open.   The increase in crude oil prices over the past 4 weeks is also raising concern that the falls in input prices that we've seen over the last few months might start to hit a floor and start rising again. Yesterday we got another snapshot of the US labour market as US job openings (JOLTS) fell to their lowest levels since April 2021, although they are still well above the levels, they were pre-pandemic. The latest employment component in the July ISM manufacturing survey also slowed to its lowest level since July 2020.     Today we get the latest insight into private sector hiring with the ADP employment report for July which is unlikely to repeat the bumper 497k seen in the June numbers. We should also be prepared for a downward revision to that report with July expected to see a more moderate 190k, as we look towards Friday's more important non-farm payrolls numbers. While stocks slipped back yesterday the US dollar rose to a 3-week high, gaining ground across the board on the grounds of the broader resilience of the US economy.     EUR/USD – still finding support at the 1.0940 lows from last week with further support at the 50-day SMA as well as the 1.0850 area. Resistance currently at last week's high at 1.1150.     GBP/USD – has continued to slide lower towards trend line support from the March lows at 1.2710, and the 50-day SMA at 1.2700. While above this key support the uptrend from the March lows remains intact. Resistance at the 1.3000 area.         EUR/GBP – popped briefly above the resistance at the 0.8600 area, before slipping back again, with the risk of a return to the recent lows at 0.8500/10. We need to see a concerted move above 0.8620 to target the July highs at 0.8700/10.     USD/JPY – continues to move through the 142.00 area, with the next target at the previous peaks at 145.00. Support comes in at this week's lows at 140.70.     FTSE100 is expected to open 30 points lower at 7,636     DAX is expected to open 88 points lower at 16,152     CAC40 is expected to open 36 points lower at 7,370   By Michael Hewson (Chief Market Analyst at CMC Markets UK)  
Pound Sterling: Short-Term Repricing Complete, But Further Uncertainty Looms

European Markets React to US Rating Downgrade and Economic Concerns - 02.08.2023

Michael Hewson Michael Hewson 02.08.2023 08:22
European markets set to open lower after US rating downgrade     We saw a negative start to August for European markets with the DAX leading the way lower, having only put in a new record high the day before, after poor manufacturing PMIs and disappointing earnings prompted profit taking.   Yesterday's weakness appears to have been prompted by concern that the economy is a little bit weaker than perhaps people would like, raising concern for earnings growth heading into the second half of the year. US markets also finished the day lower, although closing well off the lows of the day with the Dow managing to eke out a gain. US yields also finished the day higher, on the rising realisation that rates may well have to stay at current levels for quite a while yet.     This profit taking has continued overnight after Fitch downgraded the US credit rating to AA+ from AAA, while simultaneously boosting demand for haven assets, with Asia markets falling sharply, and which looks set to translate into a sharply lower European open.   The increase in crude oil prices over the past 4 weeks is also raising concern that the falls in input prices that we've seen over the last few months might start to hit a floor and start rising again. Yesterday we got another snapshot of the US labour market as US job openings (JOLTS) fell to their lowest levels since April 2021, although they are still well above the levels, they were pre-pandemic. The latest employment component in the July ISM manufacturing survey also slowed to its lowest level since July 2020.     Today we get the latest insight into private sector hiring with the ADP employment report for July which is unlikely to repeat the bumper 497k seen in the June numbers. We should also be prepared for a downward revision to that report with July expected to see a more moderate 190k, as we look towards Friday's more important non-farm payrolls numbers. While stocks slipped back yesterday the US dollar rose to a 3-week high, gaining ground across the board on the grounds of the broader resilience of the US economy.     EUR/USD – still finding support at the 1.0940 lows from last week with further support at the 50-day SMA as well as the 1.0850 area. Resistance currently at last week's high at 1.1150.     GBP/USD – has continued to slide lower towards trend line support from the March lows at 1.2710, and the 50-day SMA at 1.2700. While above this key support the uptrend from the March lows remains intact. Resistance at the 1.3000 area.         EUR/GBP – popped briefly above the resistance at the 0.8600 area, before slipping back again, with the risk of a return to the recent lows at 0.8500/10. We need to see a concerted move above 0.8620 to target the July highs at 0.8700/10.     USD/JPY – continues to move through the 142.00 area, with the next target at the previous peaks at 145.00. Support comes in at this week's lows at 140.70.     FTSE100 is expected to open 30 points lower at 7,636     DAX is expected to open 88 points lower at 16,152     CAC40 is expected to open 36 points lower at 7,370   By Michael Hewson (Chief Market Analyst at CMC Markets UK)  
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Dollar Rises to Three-Week High amid Cooling Labor Market, while Fed Rate Hike Odds Decline

Ed Moya Ed Moya 02.08.2023 08:53
Dollar rises to three-week high (low for euro) as labor market cools Atlanta’s GDPNow index rises to 3.87%, up from 3.55% Manufacturing contracts for a ninth straight month The US dollar pared some its earlier gains after the JOLTS and ISM manufacturing employment component supported a Fed skip in September, possibly confirming hopes that they could be done tightening.  The dollar was rallying against the euro as equities tumbled over mixed earnings and over concerns the US soft landing needs to be confirmed before we return to record levels.   US Data The ISM Manufacturing reported contracted for a ninth straight month, as demand remains weak, but could be showing signs it is bottoming out.  The headline ISM index report came in at 46.4, higher than the 46.0 prior reading, but a miss of the 46.9 consensus estimate.  The prices paid component rose from 41.8 to 42.6, but was below the eyed 44.0 expectation.  New orders improved from 45.6 to 47.3, while employment dropped from 48.1 to 44.4. US job openings declined from 9.616 million openings to 9.582 million, which is the lowest levels since February 2021.  JOLTS data also showed hiring decreased and the quit rate declined.  The quit rate hit fell to 2.4%, the lowest level since February 2021.  The ratio of job openings still makes it a job searcher market as there still remains more than 1.6 jobs for unemployed job seekers .     The labor market is clearly weakening and that is good news for the Fed.  Post ISM Manufacturing and JOLTS, Treasury yields at the short end of the curve gave up some of their earlier gains. The dollar index chart is showing that the dollar rebound over the past few weeks is facing massive resistance at around the 102.50 region.  If the NFP report at the end of the week confirms that the labor market is weakening, the dollar rebound might be over. A dollar floor could be in place as Fed rate hike odds decline and rate cut odds move forward. Fed swaps will likely show  the market is pricing in a coin-flip chance of a rate hike over the next two FOMC meetings or if the market grows more confident that the Fed is done.  
Czech National Bank Prepares for Possible Rate Cut in November

Brazil's Central Bank Set to Begin Easing Cycle as FX Markets Shift Focus from US Debt Downgrade

ING Economics ING Economics 02.08.2023 09:26
FX Daily: Brazil set to start its easing cycle Markets were taken aback by Fitch's downgrade of US debt yesterday. EUR/USD rose, but the greenback is enjoying safe-haven demand to the detriment of high-beta currencies. We doubt this will be a long-lasting driver for FX markets and the focus will rapidly shift back to data. In Brazil, the central bank should start cutting rates today: we expect 25bp.   USD: Downgrade unlikely to be long-lasting driver The dollar resilience was untouched by the soft block of data released yesterday, where the ISM manufacturing rebounded less than expected and remained quite deep in contractionary territory, and JOLTS figures showed a bigger than anticipated drop in job openings. Markets are clearly turning a blind eye to second-tier activity figures, and expectations that jobs figures will still be robust this week likely prevented any further dovish repricing in the USD curve, and left other factors (mostly weak data from China) to keep the dollar supported. A surprise development that shook FX markets late in the US session yesterday was the announcement that Fitch downgraded the US from AAA to AA+, with a stable outlook. Fitch mentions the fiscal deterioration over “the next three” years and elevated government debt as the main reasons for the downgrade, which is the first one since 1994. This puts the US fiscal discussion back in scope for investors after the debt ceiling saga was quickly put on the back burner. EUR/USD jumped on the news, but high-beta currencies suffered, and the dollar seems to have been shielded by safe-haven demand. Will this prove to be a driver for the FX market beyond the knee-jerk reaction? We doubt that. Treasury Secretary Janet Yellen described the downgrade as “outdated”, and markets will likely see it in a similar way (i.e. strictly tied to the debt ceiling standoff) especially in a week full of important data releases and with the next Federal Reserve rate hike hanging in the balance. Today, the ADP employment figures are the key highlight on the data front. In July, ADP figures more than doubled consensus estimates (almost 500k) but the official payroll print was a more modest 209k.
GBP/USD Eyes Further Gains as Pound Advances Against Dollar

Pound Trades Higher Amidst Modest Rebound and Economic Outlook

InstaForex Analysis InstaForex Analysis 29.08.2023 15:47
The pound traded higher on Monday. And even though the growth was hardly impressive, it was still tangible. This is in the absence of influential economic releases and generally impersonal results from the Jackson Hole symposium. In general, all this growth can be seen as a blatant rebound after the pair sharply fell at the beginning of the previous week. Speaking of today, the only thing worth paying attention to is the number of job openings in the United States, which is expected to fall by 12,000.   There are two possible explanations for this figure. Firstly, there are no more available workers in the job market, and employers can't find new employees required for business expansion and development. The second explanation is that businesses are swiftly creating enough new jobs to meet the labor market's needs. As we can see, both explanations are diametrically opposed to each other. Therefore, we shouldn't expect this report to have an impact on the market. In general, this report typically goes unnoticed. So, the market situation will generally remain unchanged.     During a technical pullback, the GBP/USD pair returned to the lower band of the 1.2650/1.2800 sideways channel. Afterwards, it traded near the base of the bearish cycle. On the four-hour chart, the RSI is moving in the lower area of the indicator, thus reflecting bearish sentiment among traders. On the same time frame, the Alligator's MAs are headed downwards, which is consistent with the current movement. The MAs are not intertwined. Outlook Falling below the 1.2650 level may favorably impact the volume of short positions. However, a downtrend will only start once the price stays below the 1.2550 mark. The bullish scenario will come into play if the price holds firm above the 1.2650 level. In this case, the pair will move sideways again. The complex indicator analysis points to a pullback in the short-term and intraday periods.
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Asia Morning Bites: Australian Inflation in Focus Amid Market Movements

ING Economics ING Economics 30.08.2023 09:38
Asia Morning Bites Eyes down for Australian inflation. Markets brace for weaker payrolls after JOLTS decline in job openings. ADP due later.   Global Macro and Markets Global markets:  There was a lot of green on the boards across the equity world yesterday. Both US, European and Chinese stock indices all rose on the day. The S&P and NASDAQ rose 1.45% and 1.74% respectively, while the Hang Seng and CSI 300 rose 1.95% and 1.0%. The earlier announcement in China of stamp duty cuts and curbs on share sales by major shareholders may have provided some lingering support. Falling US Treasury yields possibly added some additional “oomph” to the US equity market. 2Y US Treasury yields fell 11bp to 4.894%, and the yield on the 10Y Treasury bond fell 8.2bp taking it to 4.12%. EURUSD picked up to 1.0876, having briefly traded below 1.08 intraday.  Other G-10 currencies also rallied against the USD. The AUD rose to 0.6480, Cable pushed up to 1.2644, and the JPY reversed a move up towards 147.50 and came all the way back to 145.89. These moves lifted the SGD too, which has pulled back below 1.35. The PHP and VND both lost ground yesterday.   G-7 macro:  It was a thin day for Macro, but it nonetheless contained some interesting data releases. The US JOLTS survey showed a sharp drop in job openings, falling from 9165K to 8827K. This was way down on the 9500K openings that had been forecast. There was also an unexpected and sharp decline in the Conference Board’s consumer confidence indicators, including those relating to the labour market. And the US house price purchase index also came in a little softer than had been expected. Germany’s GfK consumer confidence survey also came in on the low side. Today, German preliminary  CPI data for August are due. The US publishes the second release of 2Q23 GDP as well as the ADP employment survey (195K expected), to whet our appetites (or perhaps just to confuse us) before Friday’s payroll numbers.   Australia: July CPI inflation data is forecast to decline to 5.2%YoY from 5.4% in June. But the July data will also include some chunky electricity tariff increases, so we think there is a chance the number is higher than this, with an outside chance that inflation actually rises from last month.     What to look out for: US ADP report Australia building approvals and CPI (30 August) South Korea retail sales (30 August) US MBA mortgage applications, ADP employment, GDP and pending home sales (30 August) South Korea industrial production (31 August) Japan retail sales (31 August) China PMI manufacturing and non-manufacturing (31 August) Thailand trade balance (31 August) Hong Kong retail sales (31 August) India GDP (31 August) US initial jobless claims, PCE deflator and personal spending (31 August) Japan capital spending and Jibun PMI (1 September) South Korea trade (1 September) Regional PMI (1 September) China Caixin PMI (1 September) Indonesia CPI inflation (1 September) US NFP, ISM manufacturing and industrial production (1 September)
Eurozone PMI Shows Limited Improvement Amid Lingering Contraction Concerns in September

Rates Retreat: Impact of Weaker Data on US Yields and Market Dynamics

ING Economics ING Economics 30.08.2023 09:45
Rates Spark: Losing buoyancy Weaker data is eroding the US narrative that has helped push yields higher over the past week. A lower landing zone for the Fed also means a lower floor to long-end rates. There is still more data and volatility in store this week, with the US jobs data looming large. EUR markets will look to the inflation data key input for the upcoming ECB meeting.   The Fed discount is eroding and so is the floor for the 10Y yield Recent data is eroding the narrative of US resilience that had supported the rise of 10Y yields to above 4.3% over the past weeks. Poor job openings data and dipping consumer confidence yesterday saw the 10y falling through 4.2% and then briefly further towards 4.1% overnight. Interestingly the move was largely in real rates, and it reversed all of the gains that they had managed after dipping on the weaker PMIs last week.   We had suspected that an elevated Fed discount would draw a floor under longer rates. But just as data had shifted this floor higher, data is now hacking away at that discount. The curve bull-steepened with 2Y SOFR swap rates dropping more than 12bp while the 10Y still dropped close to 10bp. Data this week holds more candidates to push yields around, especially with US jobs data out on Friday. The consensus is already looking for further cooling with the payroll increase decelerating to 170K, but the unemployment rate is seen steady at 3.5%. Keep in mind that the Federal Reserve itself – in comments and its June projections – has pointed to an unemployment rate of 4% and above as being necessary to cool inflation towards the target rate. The indications it got yesterday are going in the right direction.   A pause in September is widely seen as the base case, with markets firming their view as the discounted probability of a pause moves towards 90%. One final hike is still possible this year, but the discounted chances for that to happen have slipped from close to 70% to a coin toss. Our economist believes the Fed has already reached its peak.   Assessing the Fed's landing zone remains crucial to overall rates   Aiding the ECB decision process, first August CPI indicators from Spain and Germany European Central Bank President Lagarde did not provide any further guidance in Jackson Hole with regard to the upcoming meeting in September. From recent comments, it is clear that the hawks on the governing council would still like to see higher rates. Austria’s Holzmann had been quite explicit, saying he saw the case for a hike if there were negative surprises until then. Latvia’s Martins Kazaks also wants to err on the side of raising rates, while Bundesbank’s Joachim Nagel also says it is too early to consider a pause. In later comments, he seemed to soften his tone, suggesting to wait for the data. Following the dip in the wake of the PMIs, the market has slowly priced the probability of a hike back into the forwards, but still just below 50%. But further out, markets are back to seeing a 75% chance that a 25bp rate hike comes before the end of the year to take the ECB’s depo rate to 4%. We would focus more on the upcoming meeting, however. We also think a September hike at this stage could be more of a coin toss, but more importantly, we sense that the hawks will see it as a last chance to hike one final time. If there is no hike in September, rates will probably not rise any further. One key input to arrive at a final assessment is the inflation data this week, starting today with the preliminary readings from Spain and Germany.   Today's events and market view It appears that the tide has turned again for rates now that data is eroding the resilience narrative. The latest auction metrics, such as the strong 7Y UST sale last night, also suggest that levels had been pushed sufficiently high to attract demand again. But the key remains in the data, with the US jobs report looming large on Friday. Today, we will get the ADP payrolls estimate, with a consensus for a weaker 195K after 324K last month. The value of the ADP as a predictor for the official data is questionable, however, as was also evidenced early this month – a large upside surprise in the ADP was followed by a disappointing official payrolls figure. But today’s data and anecdotal evidence from the release can still offer insight into the health of the labour market where more signs of cooling have come to light. In other US data today, we will get the pending home sales and the second reading of second-quarter GDP growth. The main highlight for the EUR markets will be Spanish and German regional CPI data. The consensus is for Spanish headline inflation to tick higher from 2.1% to 2.4% year-on-year. For Germany, the headline is seen falling somewhat from 6.5% to 6.3% year-on-year, but the state of NRW numbers already came in slightly hotter this morning. Yesterday, supply had initially helped push yields higher before the US data turned the market. Today, we will see Germany tapping a 4Y green OBL for €1.5bn. Italy’s bond sales today include a new 10Y benchmark and will amount to up to €10bn in total.    
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EUR/USD Reacts to Mixed Economic Data: Euro Recovers from Dip Below 1.08

Craig Erlam Craig Erlam 30.08.2023 10:04
Euro slips below 1.08 but recovers German GfK consumer climate falls US consumer confidence and job openings decelerate The euro fell below the 1.08 line on Tuesday after a weak German consumer confidence report but has recovered in the North American session after soft US data. EUR/USD is currently trading at 1.0840, up 0.20%. Germany is the eurozone’s largest economy and is considered the powerhouse of the bloc. That has changed dramatically as the German economy is looking more like a dead weight than a locomotive. With the economy sputtering, it’s no surprise that German business and consumer confidence is in the doldrums. Germany’s GfK Consumer Climate is forecasting a reading of  -25.5 for September, down from the revised downward figure of -24.6 in August and below the consensus estimate of -24.3. This was the lowest reading since May, with consumers pointing to high inflation and concern about potential unemployment as key reasons for concern. Last week, German Ifo Business Climate fell in August for a fourth straight month to 85.7, down from an upwardly revised 87.4 and shy of the market consensus of 86.7 points.   German CPI expected to fall to 6.0% Germany will release the July inflation report on Wednesday. Inflation is currently at 6.2% and is expected to dip to 6.0%, considerably higher than eurozone inflation which is at 5.3%. The ECB is committed to bringing inflation back to the 2% target but it’s unclear if the central bank will raise rates for an eighth straight time or take a pause and monitor how the economy is performing. The benchmark rate is relatively low at 3.75%, but the eurozone and German economies aren’t in the best shape and higher interest rates would raise the likelihood of a recession. In the US, it was a bad day at the office.  The Conference Board Consumer Confidence Index fell sharply to 106.1 in July, compared to 116.0 in August. JOLTS Jobs Openings slowed to 8.82 million in July, down from 9.16 million in June and well off the estimate of 9.46 million. The data is further evidence that the US economy is slowing as high rates continue to filter through the economy.   EUR/USD Technical EUR/USD is testing support at 1.0830. The next support line is 1.0731 There is resistance at 1.0896 and 1.0996    
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Turbulent Times Ahead: US Spending Surge and Inflation Trends

ING Economics ING Economics 01.09.2023 10:11
US spending surges, but it’s not sustainable US consumer spending is on track to drive third quarter GDP growth of perhaps 3-3.5%. However, this is not sustainable. American consumers are running down savings and using their credit cards to finance a large proportion of this. With financial stresses becoming more apparent and student loan repayments restarting, a correction is coming.   Inflation pressures are moderating Today’s main data release is the July personal income and spending report and it contains plenty of interesting and highly useful information. Firstly, it includes the Federal Reserve’s favoured measure of inflation, the core Personal  Consumer Expenditure deflator, which is a broader measure of  prices than the CPI measure that is more widely known. It rose 0.2% month-on-month for the second consecutive month, which is what we want to see as, over time, that sort of figure will get annual inflation trending down to 2% quite happily.   Services PCE deflator (YoY%)   The slight negative is the core services ex housing, which the Fed is watching carefully due to if being more influenced by labour input costs. It posted a 0.46% MoM increase after a 0.3% gain in June so we are not seeing much of a slowdown in the year-on-year rate yet as the chart above shows. With unemployment at just 3.5% a tight jobs market could keep wage pressures elevated and mean inflation stays higher for longer so we could hear some hawkishness from some Fed officials on the back of this. Nonetheless, the market is seemingly shrugging this off right now given signs of slackening in the labour market from the latest job openings data and the Challenger job lay-off series.
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US Payrolls Report and Global Central Banks' Monetary Policies

ING Economics ING Economics 01.09.2023 10:17
05:55BST Friday 1st September 2023 A soft US payrolls report could seal a Fed pause later this month   By Michael Hewson (Chief Market Analyst at CMC Markets UK)     After 6 days of gains, the FTSE100 ended the month on a sour note bringing the curtain down on a negative month for European markets, as sentiment soured somewhat on concerns over the outlook for interest rates, and the China recovery story.     US markets also ended a similarly negative month on a downbeat note, although we have seen a shift in some of the negative sentiment in the past few days due to softer than expected US economic data which has brought yields lower and encouraged the idea that this month's Fed meeting will see US policymakers vote to keep rates on hold. This week we've seen the number of job openings for July slow to their weakest levels since March 2021, a sharp slowdown in August consumer confidence, a weaker than expected ADP payrolls report, and a downgrade to US Q2 GDP.     US continuing claims also rose sharply to a 6-week high, suggesting that recent rate hikes were starting to exert pressure on the US economy and a tight labour market. If today's non-farm payrolls report shows a similarly modest slowdown in the rate of jobs growth, then there is a very real sense that we could see further gains in stock markets, as bets increase that the Federal Reserve may well be done when it comes to further rate hikes. At the very least it could go some way to signalling a pause as the US central bank looks to assess the effects recent rate hikes are having on the US economy.     In July we saw another modest slowdown in jobs growth, along with downward revisions to previous months. 187k jobs were added, just slightly above March's revised 165k, although the unemployment rate fell to 3.5%, from 3.6%.     While the official BLS numbers have been showing signs of slowing, up until this week's 177k, the ADP report had proven to be much more resilient, adding 371k in July on top of the 455k in June. The resilience in the US labour market is also coming against a backdrop of sticky wages, which in the private sector are over double headline CPI, while on the BLS measure average hourly earnings remained steady at 4.4% and are expected to stay around this level.       Today's August payrolls are set to see paint another picture of a resilient but slowing jobs market with expectations of 170k jobs added, with unemployment remaining steady at 3.5%, although it is important to remember that whatever today's jobs numbers tell us, vacancies in the US are still well above pre-Covid levels on a participation rate which is also lower at 62.6%.     After the payroll numbers we also have the latest ISM manufacturing report which is expected to continue to show that this part of the US economy is in contraction territory for the 10th month in a row. Before today's US payrolls report, we'll also get confirmation of the dire state of the manufacturing sector in Europe with the final August PMIs from Spain, Italy, France and Germany, with expectations of 48.8, 45.7, 46.4 and 39.1 respectively.     UK manufacturing PMI similarly is also expected to be confirmed at 42.5 and the lowest level since June 2020. Weak numbers here, along with similarly weak services numbers next week will also go a good way to ensuring that the ECB and perhaps even the Bank of England err on the side of a pause when they also meet later this month.     The bar to a pause for the Bank of England appears to be a much higher one, however yesterday's comments from Chief Economist Huw Pill would appear to suggest that the MPC is already leaning towards the idea that monetary policy in the UK is already restrictive. In a speech made in South Africa he said that he preferred to see a rate profile along the lines of a "Table Mountain" approach, in other words keeping them at current levels, or even a little higher for a lengthy period of time. The contents of the speech appeared to suggest that while inflation levels remained elevated, there was an acknowledgement that a lot of the recent rate hikes hadn't yet been felt, raising the risk of overtightening, and that monetary policy was already sufficiently restrictive. This would appear to suggest that a consensus is growing that the Bank of England could be close to the end of its rate hiking cycle, with perhaps one more at most set to be delivered in September.     There also appears to be an increasing debate over the sustainability of the current 2% inflation target as being too low given current levels of inflation, with arguments being made for increasing it to 3% or 4%. The 2% target has been a key anchor of central bank monetary policy over the last 30-40 years, and while it has served a useful purpose in anchoring inflation expectations some are arguing that trying to return it to 2% could do more harm than good.     That may well be true, but there is also the argument that in moving the goalposts on the current inflation target now sends the message that central banks are going soft in getting inflation under control, and that rather than return it to target over a longer period, it's easier to move the goalposts.     This comes across as unwise particularly in terms of timing. The time to have moved the inflation target was when inflation was below or at 2%, not while it is miles above it. Optics are everything particularly when inflation is well above target, with central banks needing to send the message that inflation remains their number one priority, and not water down their long-term commitment to it because it's too hard. The time to discuss a change of a target is when that target has been met and not before. Once that happens in perhaps 1-2 years' time the discussion on an inflation target, or an inflation window of between 1.5% to 3.5% can begin.       EUR/USD – the retreat off the 1.0950 area this week has seen the euro slip back with the 1.0780 trend line support from the March lows coming back into view. We need to push through resistance at the 1.1030 area, to signal a return to the highs this year. Below 1.0750 targets 1.0630.     GBP/USD – pushed up the 1.2750 area earlier this week but has failed to follow through. We need to push back through the 1.2800 area to diminish downside risk and a move towards 1.2400.         EUR/GBP – having failed at the 0.8620/30 area earlier this week has seen the euro slip below the 0.8570/80 area. While the 50-day SMA caps the bias is for a retest of the lows.     USD/JPY – the 147.50 area remains a key resistance and remains the key barrier for a move towards 150.00. Support comes in at last week's lows at 144.50/60.     FTSE100 is expected to open 16 points higher at 7,455     DAX is expected to open 50 points higher at 15,997     CAC40 is expected to open 21 points higher at 7,335
UK Labor Market Signals a Need for Caution in Rate Hikes

UK Labor Market Signals a Need for Caution in Rate Hikes

ING Economics ING Economics 12.09.2023 09:40
The ratio of unfilled job openings to the number of unemployed workers, a ratio that BoE Governor Bailey has consistently referenced, is falling quickly now and will more-than-likely be back to pre-Covid levels within the next couple of months. Unlike the US, where so far a fall in vacancies hasn’t been paired with an increase in joblessness, the UK is experiencing a undeniable increase in the number of people unemployed for less than six months. Unsurprisingly that tends to trigger increases in longer-term unemployment with a lag.   The vacancy-to-unemployment ratio is falling quickly   The bottom line is that with the jobs market cooling and wage growth, for now at least, not coming in as hot, the labour market data does not scream a need for the Bank to keep hiking rates much further. The only thing that won’t please officials is that economic inactivity – that is the number of people neither employed nor unemployed – has started to rise again, driven by long-term sickness and a renewed rise in student numbers. In general the data has been saying that worker supply has been increasing, so this is something to keep an eye on.   Worker inactivity has begun to inch higher again   Ultimately we still expect a rate hike next week, but a number of BoE comments suggest that officials are laying the ground for a pause. We don’t totally rule that out next week, though remember we still have a round of inflation data due the day before the announcement. For now our base case is that September’s hike will be the last.      
Markets under Pressure: Rising Yields, Strong Dollar, and Political Headwinds Weigh on Stocks"

Markets under Pressure: Rising Yields, Strong Dollar, and Political Headwinds Weigh on Stocks"

ING Economics ING Economics 05.10.2023 08:52
Services PMIs in focus as stock markets struggle By Michael Hewson (Chief Market Analyst at CMC Markets UK)   Yesterday saw another day where rising US yields and a strong US dollar continued to exert downward pressure on stock markets with the DAX sinking to a fresh 6-month low, while the FTSE250 fell below its July lows to its lowest levels this year.   US markets also fell back with the S&P500 closing just above its 200-day SMA, as well as at a 4-month low. The Nasdaq 100 also had a poor day after the latest numbers for job openings jumped sharply in August by 600k, while the Dow slipped into negative territory for the year. The sharp rise in long term rates relative to short term rates suggests investors think that US interest rates are likely to remain higher for longer due to the continued resilience of the US economy. Consequently, this bear steepening is slowly unwinding the inversion of the 2/10s from the -105bps we saw at the end of June and where we are now at -35bps. If this trend of rising long-term rates continues, then stock markets could well be in for even more volatility in the days and weeks ahead. Let's not forget 2-year yields are still above 10-year yields, a situation which is far from normal. Under normal circumstances long term rates would be above short-term rates, which means this yield adjustment still has some way to go. How it plays out will be key to how stock markets perform over the next few weeks.     Also weighing on US markets was the voting out of US House speaker Kevin McCarthy, by fellow dissident Republicans on disappointment over the weekend agreement of a deal to avert a US government shutdown until November 17th. With the House now without a majority leader, a new leader will need to be appointed, a time-consuming process if the McCarthy experience is any guide, which could complicate the prospect that we might get a new deal when the current deal expires next month. If you thought UK politics was dysfunctional, then the US runs it a close second.       The weak finish in the US looks set to translate into a weak European open, with Asia markets falling sharply this morning with the focus today on the services sector and the latest US ADP jobs report.     The recent flash PMIs for France, Germany and the UK suggest further economic weakness in the services sector in September. France especially has seen a sharp slowdown despite hosting the Rugby World Cup with the flash services number falling to 43.9 from 46. Germany, on the other hand, saw a modest pickup from 47.3 to 49.8. In the UK we also saw a modest slowdown from 49.5 to 47.2, as concerns about a Q3 contraction across Europe continued to gain strength.       The weak flash readings from France and Germany make it even more puzzling as to why the ECB felt it necessary to raise rates at its last meeting, although one suspects it may well have been its last. In the US the services sector is proving to be more resilient at 50.2, while the ISM services survey has tended to be more resilient and is expected to come in at a fairly solid 53.5. Yesterday the latest JOLTS numbers for August showed a big jump in vacancies to 9.6m in a sign that the US labour market remains surprisingly resilient driving long term US yields to new multiyear highs. Today's ISM as well as ADP payrolls report could add further fuel to that yield fire with another set of strong numbers, ahead of Friday's September payrolls report. ADP payrolls saw 177k jobs added in August, falling slightly short of forecasts of 195k. Slightly offsetting that was sizeable upward revision to July from 324k to 371k, but overall, the main gains have been in services. Expectations are for 150k jobs to be added.        EUR/USD – has slipped below the 1.0480 lows of last week, opening up the potential for a return towards parity, with the next support at 1.0400 which is 50% pullback of the 0.9535/1.1275 up move, followed by 1.0200. The main resistance remains back at the 1.0740 area, which we need to get above to stabilise and minimise the risk of further weakness.       GBP/USD – looks set for a test of the 1.2050 area with a break targeting the 1.1835 area which equates to a 50% retracement of the move from the record lows at 1.0330 to the recent peaks at 1.3145. Only a move back above the 1.2430 area and 200-day SMA stabilises and argues for a return to the 1.2600 area.         EUR/GBP – appears range bound with resistance at the 0.8700 area and resistance at the 200-day SMA at 0.8720, which is capping the upside. A break of 0.8720 targets the 0.8800 area, however while below the bias remains for a move back to the 0.8620 area.     USD/JPY – made a 12-month high of 150.16 yesterday before plunging to 147.35 on the back of possible intervention from the Bank of Japan. With no confirmation at the time of writing that intervention took place, any further moves higher could be choppy. Below 147.30 signals the top is in.     FTSE100 is expected to open 6 points lower at 7,464     DAX is expected to open 33 points lower at 15,052     CAC40 is expected to open 12 points lower at 6,985  
Rates Spark: Escalating into a Rout as Bond Bear Steepening Accelerates

Market Jitters: Strong US Jobs Data Sparks Fear of Tightening Labor Market and Rising Yields

Michael Hewson Michael Hewson 05.10.2023 08:54
The fear of strong jobs By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   Even a hint of an improving US jobs market sends shivers down investors' spines.  This is why the stronger than expected job openings data from the US spurred panic across the global financial markets yesterday. Although hirings and firings remained stable, the financial world was unhappy to see so many job opportunities offered to Americans as the data hinted that the US jobs market could be going back toward tightening, and not toward loosening. And that means that Americans will keep their jobs, find new ones, asked better pays, and keep spending. That spending will keep US growth above average and continue pushing inflation higher, and the Federal Reserve (Fed) will not only keep interest rates higher for longer but eventually be obliged to hike them more. Alas, a catastrophic scenario for the global financial markets where the rising US yields threaten to destroy value everywhere. PS. JOLTS data is volatile, and one data point is insufficient to point at changing trend. We still believe that the US jobs market will continue to loosen.  But the market reaction to yesterday's JOLTS data was sharp and clear. The US 2-year yield spiked above 5.15% after the stronger than expected JOLTS data, the 10-year yield went through the roof and hit the 4.85% mark. News that the US House Speaker McCarthy lost his position after last week's deal to keep the US government open certainly didn't help attract investors into the US sovereign space. The US blue-chip bond yields on the other hand have advanced to the highest levels since 2009, and the spike in real yields hardly justify buying stocks if earnings expectations remain weak. The S&P500 is now headed towards its 200-DMA, which stands near the 4200 level. The more rate sensitive Nasdaq still has ways to go before reaching its own 200-DMA and critical Fibonacci levels, but the selloff could become harder in technology stocks if things got uglier.  In the FX, the US dollar extended gains across the board. The Reserve Bank of New Zealand (RBNZ) kept the interest rate steady at 5.5% as expected. Due today, the ADP report is expected to show a significant slowdown in US private job additions last month; the expectation is a meagre 153'000 new private job additions in September. Any weakness would be extremely welcome for the rest of the world, while a strong looking data, an - God forbid – a figure above 200K could boost the Federal Reserve (Fed) hawks and bring the discussion of a potential rate hike in November seriously on the table.   The EURUSD consolidates below the 1.05 level, the USDJPY spiked shortly above the 150 mark, and suddenly fell 2% in a matter of minutes, in a move that was thought to be an unconfirmed FX intervention. Gold extended losses to $1815 per ounce as the rising US yields increase the opportunity cost of holding the non-interest-bearing gold.  The barrel of American crude remains under pressure below the $90pb level. US shale producers say that they will keep drilling under wraps even if oil prices surge to $100pb, pointing at Joe Biden's war against fossil fuel. A tighter oil supply is the main market driver for now, but recession fears will likely keep the upside limited, and September high could be a peak. 
The Fear of Strong Jobs: How US Labor Market Resilience Sparks Global Financial Panic

The Fear of Strong Jobs: How US Labor Market Resilience Sparks Global Financial Panic

Ipek Ozkardeskaya Ipek Ozkardeskaya 05.10.2023 08:55
The fear of strong jobs By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   Even a hint of an improving US jobs market sends shivers down investors' spines.  This is why the stronger than expected job openings data from the US spurred panic across the global financial markets yesterday. Although hirings and firings remained stable, the financial world was unhappy to see so many job opportunities offered to Americans as the data hinted that the US jobs market could be going back toward tightening, and not toward loosening. And that means that Americans will keep their jobs, find new ones, asked better pays, and keep spending. That spending will keep US growth above average and continue pushing inflation higher, and the Federal Reserve (Fed) will not only keep interest rates higher for longer but eventually be obliged to hike them more. Alas, a catastrophic scenario for the global financial markets where the rising US yields threaten to destroy value everywhere. PS. JOLTS data is volatile, and one data point is insufficient to point at changing trend. We still believe that the US jobs market will continue to loosen.  But the market reaction to yesterday's JOLTS data was sharp and clear. The US 2-year yield spiked above 5.15% after the stronger than expected JOLTS data, the 10-year yield went through the roof and hit the 4.85% mark. News that the US House Speaker McCarthy lost his position after last week's deal to keep the US government open certainly didn't help attract investors into the US sovereign space. The US blue-chip bond yields on the other hand have advanced to the highest levels since 2009, and the spike in real yields hardly justify buying stocks if earnings expectations remain weak. The S&P500 is now headed towards its 200-DMA, which stands near the 4200 level. The more rate sensitive Nasdaq still has ways to go before reaching its own 200-DMA and critical Fibonacci levels, but the selloff could become harder in technology stocks if things got uglier.  In the FX, the US dollar extended gains across the board. The Reserve Bank of New Zealand (RBNZ) kept the interest rate steady at 5.5% as expected. Due today, the ADP report is expected to show a significant slowdown in US private job additions last month; the expectation is a meagre 153'000 new private job additions in September. Any weakness would be extremely welcome for the rest of the world, while a strong looking data, an - God forbid – a figure above 200K could boost the Federal Reserve (Fed) hawks and bring the discussion of a potential rate hike in November seriously on the table.   The EURUSD consolidates below the 1.05 level, the USDJPY spiked shortly above the 150 mark, and suddenly fell 2% in a matter of minutes, in a move that was thought to be an unconfirmed FX intervention. Gold extended losses to $1815 per ounce as the rising US yields increase the opportunity cost of holding the non-interest-bearing gold.  The barrel of American crude remains under pressure below the $90pb level. US shale producers say that they will keep drilling under wraps even if oil prices surge to $100pb, pointing at Joe Biden's war against fossil fuel. A tighter oil supply is the main market driver for now, but recession fears will likely keep the upside limited, and September high could be a peak.   
European Markets Rebound Amid Global Uncertainty, US PPI Miss, and Rate Cut Speculation

FX Daily: Dollar Resilient Post-JOLTS, Euro Faces Headwinds

ING Economics ING Economics 12.12.2023 12:43
FX Daily: Hard to buck the euro downtrend The dollar has shown resilience after disappointing JOLTS job openings data yesterday, leaving EUR/USD under pressure as the euro’s idiosyncratic negatives fuel bearish momentum. Today, the Bank of Canada may deliver a hawkish hold despite worsening growth, giving some help to the Canadian dollar.   USD: Showing resilience The larger-than-expected drop in October’s JOLTS job openings has offered new reasons to speculate on more rate cuts from the Federal Reserve next year, but the stronger ISM services figures in November have worked as an offsetting factor in terms of FX impact. AUD and NZD are rallying this morning, helped by stronger fixing for the yuan from the People's Bank of China (PBoC) after yesterday’s downgrade of China’s outlook by Moody’s. However, the dollar has remained rather supported across the board even after the disappointing JOLTS figures, a signal that markets are taking a less aggressive stance in FX following non-conclusive evidence of deterioration in the US outlook.   Speaking of non-conclusive evidence, it’s worth noting that the ADP payrolls being released today have no predictive power for actual payrolls. Still, markets have often moved on out-of-consensus ADP numbers. Today, expectations are 130k. MBA mortgage applications, final third-quarter labour cost data, and October trade balance figures are also on the calendar today but should not move the market. We suspect markets are holding a more cautious stance as we head into the key US payroll figures on Friday and the Fed meeting next week, where there is a good probability the FOMC will deliver a protest against rate cut bets – especially if data fails to turn lower. When adding the soft idiosyncratic momentum faced by the euro, we remain modestly bullish on the dollar into the FOMC.
Worsening Crisis: Dutch Medicine Shortage Soars by 51% in 2023

China Trade Disappoints as Moody's Downgrade Weighs on Asia Markets: European and US Markets Show Resilience Amidst Global Economic Concerns

ING Economics ING Economics 12.12.2023 13:05
China trade disappoints, as Moody's downgrade weighs on Asia markets By Michael Hewson (Chief Market Analyst at CMC Markets UK)   European markets saw another positive day yesterday, with the DAX posting another record high, while the FTSE100 broke 2 days of declines to close higher as well.   The outperformance on European markets appears to be being driven by the increasing belief that the European Central Bank may well be forced into cutting rates sharply in the early part of 2024 in response to sharply slowing inflation and a sclerotic economy.   The last few days has seen a sharp decline in bond yields reflecting an increasing belief on the part of investors that rather than higher for longer, central banks will start cutting rates as soon as Q2 next year. The shift in tone has been most notable from several ECB policymakers who have indicated that rate hikes are done.   US markets also appear to have started to run out of steam after their big November rally, as traders take stock of how resilient the US economy is.   Asia markets on the other hand have struggled with the latest set of Chinese trade numbers pointing to an economy that is still struggling, and a downgrade by Moody's on China's credit outlook, along with downgrades to banks, and other small companies which looks set to weigh in the European open this morning, in the wake of weakness in Asia markets.   In October Chinese import data broke a run of 10 consecutive negative months by rising 3% in a sign that perhaps domestic demand is returning, beating forecasts of a 5% decline.   Slightly more worrying was a bigger than expected decline in exports which fell -6.4%, the 6th month in a row they've been lower, and a worrying portend that global demand remains weak, and unlikely to pick up soon. Today's November numbers have seen imports decline by -0.6%, against an expectation of a rise to 3.9% in a sign that domestic demand is still very weak, while exports improved, rising by 0.5% a solid pick up from the -6.4% decline in October.   Yesterday's US ADP payrolls report saw jobs growth in November slow to 103k, in a further sign that the labour market is slowing, with the last 3 months showing significant evidence that hiring is slowing. This trend was also reflected in this week's fall in October job openings to 8.7m the lowest level since March 2021.   For the time being weekly jobless claims have shown little signs of increasing, trending in the low 210k for the last couple of months.   Continuing claims on the other hand have been edging higher rising to a 2-year high last week 1.93m. Today's claims numbers are expected to come in at 220k, with continuing claims set to also remain steady, ahead of tomorrow's eagerly anticipated non-farm payrolls report.   EUR/USD – continues to slip lower raising the prospect of a move towards the 50-day SMA just below the 1.0700 area. Resistance now at the 1.0825 and 200-day SMA, while above that at the 1.0940 area.   GBP/USD – remains under pressure as it continues to slip away from the 1.2720/30 area. A break below 1.2570 signals a deeper pullback towards the 1.2460 area and 200-day SMA. A move through the 1.2740 area signals a move towards 1.2820.    EUR/GBP – while below the 0.8615/20 area, the risk remains for a move towards the September lows at 0.8520, and potentially further towards the August lows at 0.8490.   USD/JPY – currently trying to rally off the recent lows at the 146.20 area, with resistance now at the 148.10 area. Looks vulnerable to further losses while below this cloud resistance with the next support at the 144.50 area.   FTSE100 is expected to open 29 points lower at 7,486   DAX is expected to open 52 points lower at 16,604   CAC40 is expected to open 24 points lower at 7,412
UK Inflation Dynamics Shape Expectations for Central Bank Actions

Taming the Rates: Analyzing the Impact of Recent Developments on the US 10yr Yield

ING Economics ING Economics 03.01.2024 14:34
Rates Spark: Enough to hold rates down The US 10yr yield remains below 4%. However that's not been validated by the data as of yet. Friday's payrolls report can be pivotal here, but based off consensus expectations the market will remain without validation from the labour market. Also, the Fed's FOMC minutes due on Wednesday are unlikely to be as racy as Chair Powell was at the press conference.   Sub 4% on the US 10yr to hold at least till we see Friday's payrolls outcome The 13 December FOMC meeting outcome remains a dominating impulse for the rates market. The US 10yr yield shot to below 4% on that day, and has broadly remained below 4% since. It was briefly below 3.8% over the holiday period, but now at closer to 4% it is looking for next big levels. The thing is, validation of the move of the 10yr Treasury yield from 5% down to 4% came from the Fed, but not so much from the macro data. We can reverse engineer this and suspect that the Fed has either seen something, or fears that it will see something that will require lower official rates. In consequence, data watching ahead remains key. In that respect, we are days away from a key reading on the labour market as December’s payrolls report is due on Friday. A consensus outcome showing a 170k increase in jobs, unemployment at 3.8% and wage growth at 3.9% would leave us still lacking validation for lower market rates from the labour market data. We have it from survey evidence, and from scare stories on credit card debt and commercial real estate woes. But it's the labour market that is really pivotal. Risk assets struggled a tad yesterday, and that makes a degree of sense given the complicated back story, and the remarkable rally seen into year end. While a one-day move cannot be simply extrapolated, there are reasons to be a tad concerned on the risk front at this early phase of 2024. Geo-political concerns have not abated, and in fact if anything are elevating. Europe is closest to many of these risks, and the economy has been faltering for at least a half year now. Yes the market is expecting rescue rate cuts, but the European Central Bank is yet to endorse those expectations. An elevation of stress without the prospect of near term delivery of rate cuts can be an issue for risk assets. For market rates, this combination maintains downward pressure. The only issue is how far we’ve come so fast. We remain of the view that the US 10yr fair value level is around 4%, but that we will likely overshoot to the downside to 3.5% in the coming months. Our fair value comes of a forward 3% floor for the funds rate plus a 100bp curve. See more on that here.   Today's events and market views It's quiet in Europe for data through Wednesday. The bigger focus for Europe will be on regional inflation readings for December due on Thursday, along with a series of December PMI readings. The likelihood is for some stalling on inflation reduction alongside confirmation of ongoing manufacturing and business weakness. In the US on Wednesday we get ISM readings that will also show a degree of pessimism in US manufacturing. The job openings data will also be gleaned, but the bigger market impulse can come from the FOMC minutes, ones that will refer back to the pivotal 13 December meeting. The odds are they won’t be nearly as dovish as Chair Powell was at the press conference.

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