US yields tanked and the US dollar slipped yesterday, after the US JOLTS data showed that the job openings in the US fell below 10 million in February.
This is the first time the JOLTS number falls below the 10 million mark since May 2021.
The data triggered strong buying in the US treasuries on the expectation that the Federal Reserve (Fed) could consider ending policy tightening.
The 2-year yield came close to 3.80%, the 10-year yield fell to 3.35% and the US dollar index hit the lowest levels in two months. Expectations for FOMC’s May meeting flipped from around 60% chance of a 25bp hike to around 60% chance of no rate hike at all.
All this is ‘good news’ for the Fed, but diving a bit deeper into yesterday’s JOLTS data, we can’t really say that the US jobs market is in a bad shape yet, because:
1. obviously, the job openings remain at historically high levels. It’s not because we are below the 10-million psychological mark that the US jobs market is collapsing, and,
2. the very same report yesterday also showed that hiring remained steady, and the number of layoffs fell while people voluntarily quitting their jobs rose!
Today, the ADP report is expected to reveal around 208K new private job additions in the US last month. Any weakness in the data will clearly be cheered by the Fed doves and could lead to further weakness in the US treasury yields, whereas a stronger-than-expected ADP print could bring the Fed hawks back to the market.
And if the Reserve Bank of New Zealand (RBNZ) is any indication of the future of the global tightening cycle, the tightening is apparently not coming to an end.
The RBNZ surprised today with a 50bp hike, versus a 25bp hike expected by analysts. The bank pointed at high inflation and strong employment, and said that there is no conflict between lowering inflation by raising rates and financial stability.
The kiwi rallied against the US dollar after the surprising hawkish RBNZ decision today. The pair advanced to the highest levels since mid-February, and could reasonably target further advance past the 65 cents level.
Cold water on Fed doves
The RBNZ decision poured some cold water on dovish Fed expectations today in Asia, as the inflows into the US treasuries also slowed, and reversed.
Again, the ADP data today, and the US jobs figures on Friday will give a better picture on whether the recent decline in JOLTS figures points at a broader weakness in the US jobs market… or not.
For now, the dollar remains under selling pressure.
The EURUSD cleared the 1.0930 resistance yesterday and could well challenge and win over the 1.10 offers if the US ADP report comes in sufficiently soft to further back the Fed doves.
In the UK, the selloff in the US dollar sent Cable to levels not seen since summer 2022. The pair rallied on stops to 1.2525 in London yesterday.
This morning, Cable is back below the 1.25 mark, but if the US dollar continues giving back field – which looks like the base case scenario at this point, we could see sterling sustainably sit above the 1.25, and target 1.2850 – the long-term downtrending channel top against the US dollar.
In commodities, appetite in oil stabilized within the $80/82 range, as the soft economic data spurred recession worries, which in return weighed on global demand prospects.
In precious metals, the falling US yields and the broadly weaker US dollar pushed gold to a fresh year-high, above $2000 per ounce.
It’s not the first time gold trades above the $2000 level. It already happened in the summer of the pandemic – when the Fed slashed rates to support economy, in the first weeks of the Ukrainian war last year – when investors rushed to the safety of gold, and it happens now, on the banking stress and prospects of economic slowdown and softer Fed policy as a result of it.
The next natural resistance for the bulls stands at $2070/2075 range, the all-time-highs.
And the two important questions are, whether gold could break its record, and whether it could consolidate gains sustainably above the $2000 level.
I don’t have an answer to these questions, but the second question is more crucial for long-term investors than the first one. And I believe that if the $2000 support holds, we could see gold enter a new era of strength.
