Jobs Jolt

Jobs, Jobs Everywhere

It was a jobs report and it stoppeth one of three. Job openings in the US fell below 10m for the first time in almost two years. But at 9.93m, down 632k from January, we are not talking about an economy suddenly lacking in capacity. It was the first of three jobs reports this week – the ADP is today and the all-important nonfarms is on Friday. US indices declined along with the dollar and yields as investors seem to say that this was a sign that Fed hikes were having an impact.

Currency Conflicts

Front end yields plunged, dragging the dollar down and sending gold to its highest in a year. Sterling jumped to a 10-month high against the dollar above $1.25 as the greenback came under pressure and the Bank of England’s chief economist hinted at another rate hike in May. New Zealand’s dollar jumped to its highest in almost two months after the RBNZ surprised with a 50bps hike to 5.25%. The DAX rallied to its best in a year, but other indices are more range-bound with the S&P 500 snapping a four-day win streak as investors saw the jobs data as a glass half full (nor any drop to drink!). European indices were pretty flat in early trade on Wednesday, whilst the dollar held losses and gold built on its gains from yesterday to rally to $2,028 this morning. Oil also retained its gains from Sunday’s OPEC-inspired leap with WTI (May) futures above $80.

Inflation and General Uncertainty

Federal Reserve Bank of Cleveland President Loretta Mester said rates should move above 5% this year remain at restrictive levels for some time. To put inflation back to 2%, rates would need to move “somewhat further into restrictive territory this year, with the fed funds rate moving above 5% and the real fed funds rate staying in positive territory for some time,” Mester said. It echoes Bullard, who said inflation will be stickier and the labour market strong; need rates to be above 5%. Latest manufacturing data was not great and we saw the front end of the yield curve move sharply lower as traders raised bets it means economy deteriorating and Fed slowing down sooner. But we should always caution about the all-knowing 2yr and how much it’s moved around in the last month – looking at it on any given day doesn’t tell you a lot except what the consensus is after the latest data print. The market is reflective of deep uncertainty at the moment.

Loony Leaders

President Macron is on the charm offensive (offensive charm?) in China. Trump plead not guilty and warned of the ‘radical left lunatics’. You should take a look at some of the characters the New York AG has left to roam the streets of a once great city.

In Case You Missed It

US ISM manufacturing index keeps on sliding and has fallen to its weakest level since the height of the pandemic in 2020. It was the fifth consecutive monthly decline after a 28-month period of growth. Sequentially you can see how the index peaked in March 2021 and has been falling since. Prices paid were a bit lower which is likely to be a boost to the Fed but the overall picture is not terribly encouraging. All five sub-indexes were in contraction territory.

Gold – looking to see whether this time the break above $2k can be sustained.