Strange familiarity

US equities remained under pressure yesterday after the JOLTS report revealed that the US job openings unexpectedly fell further in July to the lowest level since 2021. The factory orders on the other hand jumped 5%, more than expected, during the same month – a welcome addition to the jolts figure that could partly tame the rising recession worries for the US. But the latter couldn’t prevent the US 2-year yield from falling by a big chunk to 3.75%, a level that was last seen during the summer meltdown, the 10-year yield fell to the same level as well, closing its more than two year persistent gap with the 2-year yield, the US dollar fell sharply and... the USDJPY dropped to the lowest levels since the beginning of August, as well, as the Bank of Japan (BoJ) Governor Ueda added more fuel to fire saying that the bank will continue to raise the borrowing costs if needed. And today’s stronger-than-expected wage income data supported the hawkish view.

So you understood, we are living a situation of deja vu: rising dovish Federal Reserve (Fed) expectations combined with rising hawkish BoJ bets result in a movement of capital out of the risk of equities, and a flight into the safety of the Japanese yen. But this time around, the price action is not triggered by the actual data, but by the fear of seeing a second month of disappointment in the US jobs data – that will undoubtedly boost the expectation of more than one jumbo rate cuts from the Fed between September and the year end (as the market is already pricing in a full percentage point cut before the end of the year and we haven’t seen the data yet). The latter would further weigh on US yields, potentially on the US dollar – if the greenback fails to attract safe haven flows, and probably on equities as well, regardless of their exposure to technology. For now though, the equity traders remain calm. The S&P500 retreated just 0.16% yesterday and is sitting on its 50-DMA, Nasdaq 100 lost a bit more than that, 0.20%, and slipped below its 100-DMA, Nvidia fell another 1.66% even after saying that they have not received a subpoena from the DoJ as reported by Bloomberg the day before. But the Dow Jones index managed to eke out a small gain as the falling yields and the rebound in factory orders kept some big names in the index afloat.

Today, eyes are on the ADP report. A consensus of analyst estimates on Bloomberg predict that the US economy may have added 144K private jobs last month, a certain rebound from the 122K printed a month earlier. A data in line with expectations, or ideally stronger-than-expected, could pour some cold water on the recession worries and keep indices stable into Friday’s official jobs figures. A softer-than-expected figure on the other hand will likely fuel the recession worries and could further weigh on US treasury yields, the dollar and stock indices.

Also on the watchlist, ISM services, weekly crude inventories and Broadcom earnings. I have said in yesterday’s episode that Broadcom is also expected to reveal strong Q2 results after the bell. Their results are expected to be boosted by growing AI demand, a rebound in networking equipment services, and VMware’s transition from perpetual sales to subscription model – which is also thought to have contributed to the revenue increase. All this is good, but even good results from Broadcom are not a guarantee of a rebound in the company’s stock price, as the investor focus has moved from corporate earnings – which remain robust for the tech companies by the way – to the economic data, where the macroeconomic setup is not ideal for the technology companies. Voila.

OPEC blinks

Oil bears didn’t wait Friday’s data to send the barrel of US crude below the $70pb level. The rising fear of US slowdown, on top of the Chinese worries, accelerated the early week selloff. As a response to the recent meltdown in oil prices, and the potential of a deeper dive in case of worsening data, OPEC+ delegates said yesterday that they are considering a possible delay to their plan to increase supply by 180’000 from October. Surprise, surprise.

But even if OPEC+ plays it safe, their decision to extend the production cuts to the year end may not suffice to cheer up the oil bulls – increasingly worried about waning demand prospects on deteriorating global macro setup. Pricewise, this means that better-than-expected jobs figures from the US could bring dipbuyers in, carry and keep the barrel of US crude above the $70pb but another disappointment will likely accelerate the selloff and build a resistance near this level, no matter what OPEC+ decides to do.

In the FX

The US dollar’s sharp fall yesterday gave strength to currencies around the world. The USDCAD fell despite a 25bp cut from the Bank of Canada (BoC), the EURUSD traded a few pips below the 1.11 level despite a set of softer-than-expected PMI figures from the Eurozone. Cable rebounded from the 1.31 support, but there, the stronger-than-expected PMI figures reinforced the improved growth prospects for the UK economy. The outlook for the EURGBP remains bearish, not only because the UK economy has been performing better than its European peers, but also because the dark clouds over the UK are finally dissipating. Earlier this week, a bond sale in the UK attracted record demand thanks to higher gilt yields – a sign of restoring confidence in UK politics after the Conservatives were ousted from the leadership of the country. And on top of it all, the Bank of England (BoE) adopts a more moderate dovish stance than its western peers – which is also a reason why investors see a brighter future for sterling against both the US dollar and the euro.