Treading Water, Waiting For Jobs Day

WHERE WE STAND – Another quiet-ish day for markets on Tuesday, as the slow but steady cruise towards Christmas continues, and as participants collectively hope that Friday’s US labour shan’t throw a spanner in the works of what’s looking to be a subdued December.

Data- and news-flow were both rather lacking yesterday, with the most notable headlines being those which largely confirmed what was already known; namely, that OPEC+ are set to delay the planned 180k bpd output hike for the entirety of Q1.

While this was enough for a knee-jerk move higher in both Brent and WTI, in the grand scheme of things it is ‘small beer’, considering the dismal demand outlook, and proposals for the US to increase crude production by as much as 3mln bpd. I remain a rally seller in crude, though of course wouldn’t seek to hold positions over the weekend as geopolitical risk continues to linger.

Elsewhere, the latest US JOLTS job openings figure was relatively solid, surprising to the upside of expectations at 7.744mln in October – of course, the print references the employment situation on the last working day of the month, so likely wasn’t as skewed by weather and industrial action as the October NFP print proved to be. In any case, the quits rate rose to 2.1%, its highest level since May, perhaps indicating improving sentiment among employees about the state of the labour market.

In any case, the data continues to point to a gradual normalisation in employment conditions, which remains broadly consistent with the US economy achieving a ‘soft landing’. A December cut, in my view, remains nailed on, barring a substantial upside NFP surprise (say, > 300k), with market pricing still looking rather too dovish, assigning just a 70% chance of such an outcome, per the USD OIS curve.

More broadly, markets didn’t do especially much of interest yesterday. G10 FX was choppy, within recent ranges, with an early bout of USD weakness fading as the day progressed. I still see the path of least resistance leading higher for the buck into year-end, remaining a strong believer in the ‘US exceptionalism’ story, and seeing little-to-no reason to be long of any other major currency at the present juncture.

Treasuries were also choppy yesterday, with marginal demand seen at the front-end, though the market ultimately lacked direction. This likely also contributed to the meander that gold went on for most of the day, with the yellow metal treading water for most of the day, remaining trapped in a tight band between the 100-day moving average to the downside, and 50-day moving average to the upside, at $2,580/oz and $2,670/oz respectively.

Stocks were also rather choppy, though both the S&P and Nasdaq ultimately ended the day in the green, as the former eked out its 55^th record high of the year. I remain confident in the bull case into year-end, and would be a dip buyer if any were to occur.

LOOK AHEAD – A busier docket awaits today, with services PMIs galore, as well as Fed Chair Powell, ECB President Lagarde, and BoE Governor Bailey all speaking – what joy!

Of the PMI figures, the latest US ISM services index will naturally be of most interest, particularly the employment sub-index ahead of Friday’s jobs report. At a headline level, incidentally, the index is seen at 55.6 from a prior 56.0, implying a still-solid pace of expansion, in contrast to the woes facing most economies on this side of the Atlantic.

Meanwhile, participants will seek clues on the policy outlook form the aforementioned three central bank chiefs, though explicit guidance on the future rate path is likely to be somewhat thin on the ground, with a ‘data-dependent’ and ‘meeting-by-meeting’ approach continuing to be preferred. In any case, both the FOMC and ECB should deliver 25bp cuts later this month, with the BoE likely on hold until next February.

Finally, there are a couple of releases worth ignoring today – firstly, the monthly ADP employment report, which tends to bear no resemblance whatsoever to the official NFP figure due Friday; and, secondly, the release of the Fed’s ‘Beige Book’, which is typically as dull reading as the name would suggest!