Markets:
- Gold falls $20 to $2,496
- The 10-year US Treasury yield fell 1.4 basis points to 3.72%, and the 2-year Treasury yield fell 9.3 basis points to 3.65%.
- West Texas Intermediate crude oil fell $1.07 to $68.08 a barrel.
- S&P 500 down 1.7%
- Japanese Yen Advances, Australian Dollar Lags
Friday’s nonfarm payrolls data was in line with expectations, if not entirely clear. The emotional reaction to the report was dovish, with the US dollar selling heavily as the probability of a 50bp rate cut rose to 57%. The euro rose to 1.1154 from 1.1105 on the move and sterling rose 60bp to 1.3240.
It took about an hour for those moves to completely fade, as the market took a second look at the jobs report and began to question whether the headline error and revisions were enough to offset the slightly improved unemployment rate. The decline was exacerbated by Williams, who offered little support for the 50 basis point rate cut, playing it safe.
The next big move was with Waller, the Fed chairman. Initially, the market latched onto his talk of early cuts:
I would be in favor of cutting interest rates in advance if that was appropriate.
But the market took a closer look at the speech overall, especially the line that “the labor market is softening but not deteriorating,” and that reduced the odds of a 50 basis point rate cut to 23%.
But there is always reversal in the markets, and that in turn has caused stocks to rout and a flight to safety in bonds. It is a classic case of the market kicking and screaming that has pushed the 50 basis point odds to 31%. Timiraos, for his part, commented on the 25 basis point side, but I certainly wouldn’t call that a leak, although it may have moved the markets.
The main volatility of the day was in USD/JPY, which ranged between 141.79 and 143.89 and eventually finished around 50 pips off its lows. But there were 5 touches on either side of that range as volatile trading continued. All eyes will be on Japan at the open on Monday after a tough week for the Nikkei.
The US jobs report wasn’t the only one out, with Canada’s unemployment rate rising to 6.6% from 6.4% and now two percentage points above its lows. The lack of a 50bp rate cut from the Bank of Canada this week is a worrying sign that central banks are behind the curve, and Brent crude closing at its lowest since 2021 certainly isn’t helping the CAD.
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