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Weaker JOLTS signal slack in U.S. labour market

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By Craig Erlam  

Equity markets are treading water in the middle of the week as investors weigh up what is next for the Fed following the surprise decline in JOLTS job openings, how much further the RBNZ will go in light of Wednesday’s decision and what the OPEC+ cut means for oil prices and inflation.

Tuesday’s job openings and labor turnover survey (JOLTS) could be the first sign of weakness in the US labour market and that is huge.

Without it, the Fed will find it very hard to argue that it is pausing the tightening cycle. Now it needs to be backed up and the NFP jobs report on Friday could start that process.

RBNZ not done with tightening

The RBNZ is clearly not of the view that it is close to being able to pause its tightening cycle, despite having raised rates extremely aggressively over the last year or so.

The New Zealand central bank surprised markets by raising the OCR by 50 basis points and there’s likely to be more to come.

As we’re seeing elsewhere, the country has its own issues with inflation, most notably an extremely tight labour market. There may be some economic pain ahead as the central bank tries to get to grips with that.

Oil holds gains after OPEC+ cut

Oil prices are consolidating after the early-week surge in the aftermath of the OPEC+ announcement. The decision to cut output by 1 mln bpd has proven to be very controversial, much like the 2 mln reduction in October, but just like that, there’s no guarantee it will lead to dramatically higher prices.

In fact, at this stage crude is only trading around the highs of the last four months and it’s tested these levels on a number of occasions. A break above could be a bullish signal, but at this point, we are still seeing plenty of resistance.

Recent stress in the banking system has led to weaker economic expectations and lower interest rate forecasts, and the cut could simply be a response to that.

At this point, the only thing that’s clear is that OPEC+ has no appetite for Brent prices below $80 a barrel.

That could make any future foray below that challenging as the group has now shown not only will it cut production, it will do so without warning. That is clearly the message they wanted to send.

Gold edging closer to record highs

Gold smashed through $2,000 on Tuesday as the latest JOLTS data showed job openings declining and significantly so, in one of the first signs of the U.S. labour market cooling. It’s still very early days, but the data will be a little encouraging for the Fed, especially if paired with a softer jobs report on Friday.

We’ve heard a number of announcements of mass layoffs in tech and banking in recent months, but that hasn’t yet been reflected in the data and it could be that we now start to see slack appearing.

It comes at a good time as the Fed could do with a reason to pause the tightening cycle. The response we saw in yields and gold on Tuesday suggests investors believe it may now get that.

For gold, it’s only traded at this level on two days ever, so that doesn’t leave much guidance in terms of technical levels, beyond the all-time highs around $2,070. A weaker jobs report on Friday could see that tested, especially in what will likely be extremely thin trade given the bank holiday.

Next bullish catalyst for bitcoin?

We continue to see choppy trade in bitcoin, but importantly, pullbacks have been small and brief which may reassure the crypto crowd that there’s more to come.

It’s just hard to know at this point whether the rebound is sustainable, what the next bullish catalyst will be, or even how it will respond to Friday’s jobs report, if it is at the weaker end of the spectrum.

Whatever happens, it promises to be a fascinating one to follow.

 

Craig Erlam is Senior Market Analyst, UK & EMEA at OANDA

Opinions are the author’s, not necessarily that of OANDA Global Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. Losses can exceed investments.