A Jolt From The JOLTS Report

WHERE WE STAND – The monthly JOLTS job openings data gave financial markets a jolt yesterday (sorry!), with openings in September falling to their lowest level since February 2021, at just 7.443mln.

However, there is more to this than meets the eye. The JOLTS figure represents job openings as they stood on the last working day of the month. In September, the 30^th was just four days after Hurricane Helene made landfall, and was wreaking havoc across southern states. Those southern states, in fact, saw openings fall a whopping 325k MoM, accounting for almost all of the downside surprise, and the decline from the prior 7.861mln print.

This also helps to explain why the September JOLTS and NFP figures tell such a different story of the labour market. A glance at JOLTS suggests a weakening employment situation, whereas a glance at the +254k NFP figure from last month suggests that all was rosy.

In fact – both are correct!

It’s simply a matter of timing; the NFP print reflects the employment situation in the week containing the 12^th of the month, while the JOLTS number reflects the situation around three weeks later. That does, though, provide further evidence of downside risk to the October NFP print, due Friday lunchtime.

For markets, though, all this proved rather difficult to digest, and wasn’t helped by the soft JOLTS data arriving at the same time as a chunky beat on consumer confidence, with the Conference Board’s index rising to its highest level since January, at 108.7.

In any case, once the dust settled, the data seemed to stop the Treasury sell-off in its tracks, with strong 7-year supply (stopping thru 2bp) helping things along. It would appear that, with the benchmark 10-year yield having risen north of 4.30% for the first time since July, and the 2-year poking its head above 4.15%, yields have reached a level that is too alluring for buyers to resist. I’d expect this, as well as some demand to hedge positions before election day, to give bond bulls the upper-hand in the short-term.

Speaking of election hedging, 1-month USD/MXN implieds have now risen north of their pre-2020 election level, to 23.25%, though remain considerably below the peak seen prior to the 2016 election at 28.70%. As I’ve been harping on about for a while, buying USD/MXN vol is the true ‘Trump trade’ in my view, with considerable further upside possible if the market were to become increasingly convinced of a Trump return to the White House.

Spot FX, meanwhile, was choppy yesterday. The dollar briefly traded to fresh 2-month highs, above 104.60, before gains were pared in the aftermath of the JOLTS data. Still, with the ‘US exceptionalism’ theme still strong, and with the DXY continuing to trade comfortably north of the 200-day moving average, I see little reason to be betting against the buck at this juncture.

Other G10s were also relatively mixed, though the GBP did find some buyers, as cable forced its way north of the 1.30 figure, likely a result of selling flows in EUR/GBP, which took the cross below the 0.83 figure for the first time in 10 days, and close to fresh 2-year lows. It’s quite the damning reflection on the eurozone’s economic prospects when participants would rather be long of GBP than the common currency, particularly ahead of the significant tax hikes and spending cuts that the Chancellor is set to deliver later today.

In the equity space, it was a day of gains on Wall Street, with the S&P rallying around 0.3%, while the tech sector outperformed, as the Nasdaq 100 gained over 1% on the day. After hours, Alphabet delivered solid earnings, particularly in the cloud revenue line, though AMD’s report was somewhat soft, particularly in terms of Q4 guidance, seeing the stock punished with a 5% after hours decline – while other chipmakers such as NVDA and AVGO also faced headwinds in sympathy.

Lastly, given that the day ended in a ‘Y’, it should come as no surprise that gold traded to a fresh record high, with the yellow metal continuing to shine, adding just over 1% on the session. In fact, with gold now around 35% higher YTD, this marks the best such performance since at least 1998. There seems no stopping this golden-coloured momentum juggernaut for now.

LOOK AHEAD – A busy day looms and, for UK readers, it’s likely to be a relatively grim one, in all honesty.

Chancellor Reeves delivers ‘The Budget’ this lunchtime, with a £40bln combination of tax hikes and spending cuts likely to fill a supposed £22bln “black hole” in the public finances, and to build greater fiscal headroom. Said tax hikes will likely leave salaried income untouched, with changes to capital gains tax, inheritance tax, fuel duty, and employer national insurance contributions among the rumoured measures.

Meanwhile, Reeves is also set to change the debt measurement used to judge progress against the ‘Fiscal Rules’ to the catchily-named Public Sector Net Financial Liabilities (PSNFL) metric. This, should, free up around £50bln in headroom for capital investment, though market participants will be seeking strong guardrails to prevent ballooning borrowing as a result of this change. A full Budget preview is here.

Elsewhere, the US data docket is busy, highlighted by the first estimate of third quarter GDP, which is set to show the economy having expanded at an annualised QoQ pace of around 3%, the eighth quarter in the last nine to see growth in excess of 2%. The eurozone also releases Q3 GDP today, set to point to a rather more anaemic 0.2% QoQ growth rate – here’s the ‘US exceptionalism’ theme in action!

The earnings docket, finally, is again busy, with both Microsoft and Meta reporting after hours, as a bumper week of ‘magnificent seven’ earnings continues. Options price post-earnings moves of +/- 4.2% and +/- 7.5% in MSFT and META respectively.