Daily Market Pulse

The US October Job Openings release yesterday sagged to its lowest reading since March 2021 with declines broadly across sectors, while the prior month figure was also revised down. Risk markets remained mixed yet resilient after the US jobs data and Moody’s downgrading of Chinese sovereign bonds to negative that deepened global concerns about the level of debt in the world’s second-largest economy. China’s deficit-to-GDP ratio is well above its long-adhered-to 3% limit (3.8% in 2023), fueling belief that more government action will come to support a faltering recovery with President Xi Jinping indicating of late that he would not tolerate a slowing of growth or a lingering of deflationary risks.

Overnight equity markets advanced on further speculation of Fed rate cuts ahead after further evidence of a US labor-market slowdown in yesterday’s JOLTS report. Implied fed funds futures rates now project nearly one-and-a-half 25-basis-point cuts (0.375%) for the May 2024 FOMC rate decision.

The US ADP jobs release this morning added to evidence of a cooling labor market, showing just 103k private payroll jobs added in November on expectations of 130k. The USD (by BBDXY measure) would trade marginally softer after the release. Investors’ eyes turn to Friday’s uber-important NFP release.

EUR/USD traded lower yesterday, in line with its G10 peers and following broader USD price action. The ECB’s Kazaks made headlines overnight pushing back against investor bets for rate cuts in early 2024, stating the ECB probably won’t need to lower borrowing costs in the first six months of next year. There are nearly 150 basis-points worth of rate cuts priced in 2024 for the ECB currently. Eurozone retail sales data rose less than expected.

GBP/USD traded steady overnight after two days of declines, as investors eased BOE rate cut bets in 2024. BOE Deputy Governor Sarah Breeden said there’s still a lot of pain ahead for households since much of the increase in interest rates over the past two years has yet to feed through. The Financial Stability report released today also highlighted that rising wages in real terms and a drive by households to pay down their debts have helped ease the pain families are feeling when they come to refinance their mortgages.

The USD/CAD firms ahead of today’s 10AM BOC decision, where the expectation is for rates to remain unchanged at 5%. Investors will scour statement language for acknowledgement of rates being high enough after data last week showed a contraction of Q3 GDP and the unemployment rate ticking up.

Emerging market FX – such as MXN and BRL – are rising along with their peers today after the softer US jobs data. US Treasury Secretary Janet Yellen participates in a bilateral meeting with Banxico Governor Ceja at 10:45 a.m.