US Jobs + German Inflation Pushing Bonds Around

Greener Pastures

Equity markets rose early on Wednesday amid a strong handover from Wall Street and generally positive Asian session, with generally lower bond yields and a softer dollar contributing to a more constructive mood. The FTSE 100 added around half a percent to retest 7,500, whilst the DAX lagged a bit on the flatline and the CAC nudged a little higher.

Tech stocks are rebounding after being in the doldrums for much of August. Led by a record high for Nvidia, the Nasdaq composite rallied 1.74% to its best in three weeks. Strength in megacaps was notable with NDX rising 2.15% on the day. The wider market picked up the mood with the S&P 500 rising 1.45% to almost 4,500 for its best day since June. Nvidia rose 4% after announcing a partnership with Google to allow its cloud customers access to chip. Looks like August might not be such a bad month after all.

US Jobs Weaker

Yields continue to soften across the board as US jobs data came in weaker than expected. Benchmark 10yr Treasury yields down to 4.15% and the 2yr back below 5% as JOLTS job openings fell to 8.8m from around 9.5m expected, the lowest since September 2021. Over the last three months, 2.55 million job openings have been lost, the largest 3-month decline on record. ADP numbers are due later, fc 194k. US GDP also due, seen at 2.4%.

Meanwhile a beat for the North Rhine Westphalia inflation print this morning has bund yields a tad higher after the market was bid strongly yesterday. NRW August CPI rose to 5.9% from 5.8% year-on-year, and +0.5% on a monthly basis. The overall picture won’t be clear until lunch but this reading is a good guide for the national story. That’s nudged up expectations the ECB will hike rates once more next month. So near-term at least some CB divergence expected with the data pointing to a Fed pause and an ECB hike in September.

Next Move for the Fed?

Don‘t get too excited just yet - I refer to Jay Powell’s comments at Jackson Hole: “So far, job openings have declined substantially without increasing unemployment—a highly welcome but historically unusual result that appears to reflect large excess demand for labour”. But it probably means the Fed holds next month rather than feels pressured to hike again.

Joining the dots on employment and inflation, Powell also noted that “there is evidence that inflation has become more responsive to labour market tightness than was the case in recent decades.” Hence he can argue: “Evidence that the tightness in the labour market is no longer easing could also call for a monetary policy response”. In short, he’s looking at the labour market more closely than ever and this will not necessarily mean openings matter if unemployment stays as low as it is.

Greasing the Wheels

Oil rose on a big API draw - stocks fell by over 11 million barrels last week. Add to that the incoming Hurricane Idalia about to make landfall in Florida and you get some additional near-term drivers for prices to remain elevated. The US National Hurricane Center warns there could be a “catastrophic storm surge”, with several operators shutting plants and evacuating staff in the Gulf of Mexico. Spot crude (WTI) rose to $81.40 this morning. Natural gas prices cooled off after Monday’s gap higher on Australian strike action.

Elsewhere...

Lower Treasury yields and the soft data pressured the dollar, which bounced clean off our old support area at 103.30.

EURUSD – looking for a bullish MACD crossover as the bulls looks to wrest control as price action consolidates above the 200-day SMA and trend.