And that’s great news, especially since the average 30y fixed mortgage rate has risen to 7.22% according to Mortgage News Daily and the monthly payment for a 200k mortgage has risen by $50 in one week. The ADP Employment Change data yesterday doubled expectations by rising +497k against the expected +228k figure: as you can see in the attached table, the increase occurred mainly in the service providing industry sector. As a matter of fact, just before, Challenger Job Cuts were half of the expected ones, while the most headline figure – Jobless Claims – came out broadly in line with expectations.
ADP Numbers
The reaction was immediate for USD and Interest Rates, while the drop for indices and stocks intensified shortly afterwards. Rates rose strongly, the 2y US rate touched 5.11% as it hasn’t done since 2007 and the 10y US also traded above 4%. Towards the end of the day yields fell a bit, but not so the 30y rate that stayed heavier. The USD index climbed almost 0.6% after the announcement, to 103.27, with the EURUSD down about 60 pips to 1.0833, and the USDJPY regained 144, lost earlier in the day (and at the closing settlement). The SP500 was losing > 1% before closing down -0.8% (as did the Nasdaq). DJ at -1%.
Such strong data have raised expectations of a new Fed hike in July to 91% – although in the long run the market still does not believe the bank will be as aggressive as it says, as can be seen by the still ongoing deviation between swaps and dot-plots. In the same vein, yesterday the UK terminal rate was also totally priced in at 6.5% in Mar 2024.
Today’s headline will naturally be the NFP, expected at +225k down from +339k last month: it would be the second lowest reading in 12 months and yesterday’s stellar figure keeps the bar very high. Attention will also be paid to Hourly Earnings as a slow down would take further pressure off inflationary pressures and to Unemployment, expected lower at 3.6%
- FX – The USDIndex is down -0.14% to 102.70 this morning, EURUSD is trading at 1.0892 while CABLE is just shy of 1.2750. USDJPY is weak, -0.40% at 143.448.
- Stocks – US Futures are mildly negative (US500 -0.08% at 4405, USA100 -0.07% at 15.066). In APAC: China -0.32%, HK -0.72%, Nikkei down to 34440. Tesla said to have started cutting jobs in Shanghai factory’s battery assembly division.
- Commodities – USOil still above $72, now trading at $72.10, Gold tested the 1900 area yesterday and is now trading up at $1914.
TODAY: US NFP, Unemployment, Average earnings, CAD unemployment, ECB’s Lagarde and De Guindos speeches.
Biggest Mover @ (06:30 GMT) Coffee (+0.66%) rebounds off $155 after a 2-week long drop. Both MACD and RSI are negative, the latter one not being particularly oversold. 50 and 200 MAs are in the $180 area now, $35 higher than the current price.
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Marco Turatti
Market Analyst
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