US JOLTS shake markets – Job Openings drop, signs of labor market normalization

Markets

Monday’s uptick in yields already got wiped out yesterday. Culprit this time: US JOLTS. October job openings fell from a downwardly revised 9350k to 8733k vs the 9300k expected. It’s still a historically high number but it suggests the labour market is further normalizing. In current circumstances this is all the evidence (for a quick Fed pivot) markets are looking for. The US services ISM rose to a higher than expected 52.7 on a combination of rising business activity (55.1) and a solid flow of new orders (55.5). Employment, however, undershot expectations by growing only marginally, strengthening the message coming from the JOLTS. Prices paid barely eased from 58.6 to 58.3. US yields shed between 5.9 (2‐y) and 11.3 bps (30‐y). ECB’s Schnabel Reuters interview triggered Bund outperformance for most of the day before UST’s caught up later. German yields dropped 8.5‐14.2 bps with the long end outperforming. Stocks in Europe eked out a nice gain, allowing the EuroStoxx50 to surpass important resistance in the 4400 area. In the US however, the yield drop offered much less equity support. The jury’s out on whether the soft landing scenario is all but priced in now. EUR/USD dropped towards next support at 1.08. DXY escaped the downward November trend channel by closing above 104. Currencies Down Under underperformed. Moody’s cut the rating outlook of a key trading partner, China, to negative. It highlighted the economic and financial uncertainty surrounding the country. While the CNY held its nerves yesterday, it is facing stronger selling pressures this morning. USD/CNY gaps higher to 7.158. With news flow thin otherwise, we move on to today’s eco calendar. On the agenda are meetings by the Canadian and Polish central bank and US ADP employment growth. The latter is expected at 130k. Risks for an asymmetric market reaction remain live. The US 10‐y is nearing the 50% retracement on the 2023 rise fast (4.13%). In the corrections of the past several years, this often served as an important support. However, we don’t want to call the end until we actually see yields stop moving south on disappointing (activity) data. Since US yield moves lately easily spilled over to Europe, we hold on to a stronger dollar, more so given the recessionary vibe that’s looming over the continent. EUR/USD is currently losing the 1.08 with next support kicking in at 1.0756 and 1.0733. Sterling continues to be in a sweet spot. EUR/GBP is stabilizing near the recent lows just north of support at 0.8557.

News and views

Australian GDP growth unexpectedly slowed to 0.2% in Q3 from 0.4% in Q2, the country’s bureau of statistics released this morning. Activity was 2.1% higher compared to the same month last year. It was the eighth straight rise in quarterly GDP, but consensus expected a faster 0.5% Q3 growth. Government spending and capital investment were the main drivers of Q3 GDP growth. Government final consumption expenditure rose 1.1%, driven by social benefits to households. Defense also contributed to growth. A 1.1% increase in gross capital formation was also supported by public corporation activity. Change in inventories contributed 0.4% to GDP growth but this mainly reflected falling exports. Net trade contributed a net ‐0.6% to growth. Household consumption in Q3 was flat, even as the household saving to income ratio dropped for the eight straight quarter to 1.1%, the lowest since Q4 2007. The Q3 GDP release allows the RBA to keep a guarded wait‐and‐see approach. The 2‐y government bond yield dropped 10 bps this morning (3.98%). The Aussie dollar initially rose in a positive risk sentiment, but the rebound slowed after the release of the GDP data. AUD/USD currently trades slightly below 0.66.

Spain, which currently holds the EU presidency, proposed a new framework aimed at reducing government deficits while at the same time leaving room for green and defense investments, Bloomberg reported citing people familiar with the matter. The proposal would oblige countries to cut debt as a percentage of GDP by an average 1 ppt over an adjusted period when it exceeds 90% of GDP. Countries with debt to GDP levels between 60% and 90% would have to reduce their debt by half that pace. According to the report, countries would also need to build a fiscal buffer of 1.5% of GDP, below the ECB’s 3.0% target, but it would give governments leeway to finance the green transition and support the block’s military capacity. In the proposal, a government expenditure cap might also be an important mechanism to reduce the deficits.

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