Outlook: Uncertainty over the next central bank moves in the US and eurozone rules the day so far today. In the US, yesterday’s Beige Book noted a strong labor market and employers finding it hard to get workers “across a wide range of skill levels and industries."
The JOLTS report showed job opening up to 10.103 million from 9.745 million the month before vs. a drop to 9.775 million forecast. Today we get the ADP private sector forecast for payrolls, expected down to 170,000 from 296,000 the month before but Trading Economics seeing 200,000. See the chart. There is no trend. There is also no clear sign that the Fed will be getting the labor market correction it thinks it needs to bring down consumer demand and thus inflation.
Reuters reports BlackRock’s Fink opining that inflation is still sticky and the Fed may need to do more. "The economy is more resilient than the market realizes. I don't see evidence that we're going to have a hard landing." At the same time, the expectation is widespread that the US dives into recession in Q4, if perhaps a soft one.
Some of that recession story is based on unhappy PMIs, and we get another two today—the S&P and the ISM (for manufacturing). Let’s not forget that manufacturing is a small portion of the US economy and it’s services that count. Still, Reuters has a nice chart showing the Chicago national and the PMI, both still well below the 50-50 boom/bust line.
Net-net, the Fed may skip the June hike, but more hikes are almost certain unless recession looks a lot clearer than it does today. Can you have recession and a tight labor market? The Fed seems to think not.
Forecast: Risk appetite/risk aversion is careening madly down the road, with the probability of a June 14 hike (13 days away) having shifted to only 30.8% from 51.7% a week ago and the probability of hold/no change at 69.2% from 48.3% a week ago. The new June skip outlook is not the same thing as a pause, which would be more long-lasting.
While Bloomberg sees the skip comments as a “clear signal,” not everyone buys the skip outlook, including Brown Brothers. As noted before, the CME probabilities skitter all over the place by the minute like deranged mice, but yesterday we cited a high 65.3% probability of a June hike and now the hold/no-hike probability is 69.2%. Wild gyrations like this reflect speculative bets but also rising uncertainty, and that tends to favor risk-off and the dollar. But’s a weak hook on which to hang your hat.
This is an excerpt from “The Rockefeller Morning Briefing,” which is far larger (about 10 pages). The Briefing has been published every day for over 25 years and represents experienced analysis and insight. The report offers deep background and is not intended to guide FX trading. Rockefeller produces other reports (in spot and futures) for trading purposes.
To get a two-week trial of the full reports plus traders advice for only $3.95. Click here!
This morning FX briefing is an information service, not a trading system. All trade recommendations are included in the afternoon report.