Energy and utilities provide only hiding place, as traders await jobs data

Japanese volatility dominated the Asian session, with a sharp spike in the Yen leading many to believe that the BoJ have stepped in to reverse the trend that took USDJPY to the 150 handle for the first time since October 2022. Recent warnings from Finance Minister Shunichi Suzuki indicated that he was watching currency moves “cautiously”, and that seems to have finally resulted in action. While the government and BoJ have refused to confirm their hand in this latest volatility, their top currency diplomat Masato Kanda stated that he would not rule out any options on the FX front. Elsewhere, the overnight RBNZ rate decision saw New Zealand’s official cash rate stay steady at 5.5%, marking the third consecutive pause for the bank. With markets heading sharply lower on emerging economic risks, it seems highly likely that we are done with any further monetary tightening for the time being.

Markets have continued their downward spiral this week, as concerns over the surge in long-term bond yields continue to drive risk-off sentiment. While monetary tightening from the Western central banks has been overlooked on the expectation that we will soon see rates reverse lower, repeated higher-for-longer warnings from the Federal Reserve appear to have finally hit home. Rising energy prices and the prospective impact on inflation have helped drive long-term yields higher, with markets hit hard on the prospect of a subsequent prolonged economic crisis if we do not see rates come down anytime soon.

US markets remain at risk as long as yields move higher, with traders keeping a particularly close eye on energy prices in the meantime. Yesterday’s declines saw widespread losses throughout the S&P 500, where utilities and energy names provided the only glimmer of light in an otherwise sea of red. Yesterday’s JOLTS job opening data did little to help sentiment, with a jump in openings bringing concern of a potential negative turn for the jobs market. However, this notoriously volatile number will be less important than those released on Friday. In the meanwhile, we gear up for Friday’s jobs report through the ADP payrolls figure today, with any significant signs of weakness likely to bring additional risk-off sentiment.