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US Jobs Report Eyed as Weaker JOLTS Data Signal Slack Appearing in Labour Market

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2 months ago

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recruited

By Craig Erlam, Senior Market Analyst, UK & EMEA, OANDA

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 today’s decision and what the OPEC+ cut means for oil prices and inflation.

There’s been a lot to take on board over the last few days and it’s been a real mix of good and bad news. The JOLTS data yesterday could be the first signs of weakness in the US labour market and that is huge. Without it, the Fed will find it very hard to make the argument that it is pausing the tightening cycle. Now it needs to be backed up and the jobs report on Friday could start that process.

RBNZ not done with tightening despite huge rate hikes over the last year

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 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, New Zealand 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 but remains around recent highs

Oil prices are consolidating after the early week surge in the aftermath of the OPEC+ announcement. The decision to cut output has proven to be very controversial, much like the two million barrel 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 here 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 there 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 ever closer to record highs

Gold smashed through $2,000 on Tuesday as the latest JOLTS data showed openings declining and significantly so, in one of the first signs of the 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 and the response we saw in yields and gold yesterday 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.

What will be the next bullish catalyst for bitcoin?

We’re continuing 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.

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Crude Oil

Saudi Arabia’s Output Cut Pledge Outweighs Weak Chinese Data and Rising US Fuel Stocks, Pushing Oil Prices Higher

The oil market faces a potential massive shortfall as Saudi Arabia’s surprise decision to deepen output cuts overrides concerns over Chinese export data and growing US fuel inventories.

Published

4 hours ago

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June 7, 2023

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Oil

Crude oil appreciates in the early trading session of Monday as Saudi Arabia pledged to slash its oil production by an additional 1 million barrels per day (bpd) in July.

The announcement prompted oil prices to edge higher on Wednesday, despite weak Chinese export data and rising fuel stocks in the United States.

Brent crude oil, the international benchmark for crude oil, rose by 36 cents, or 0.5% to $76.65 per barrel, while US West Texas Intermediate crude oil gained 37 cents, also at 0.5% to settle at $72.11. These gains followed Monday’s significant surge of both oils, with each jumping over $1 after Saudi Arabia’s decision was made public.

“As things stand, the oil market is on the cusp of a massive shortfall,” said PVM Oil’s Stephen Brennock. “Additional Saudi cuts are expected to deepen the market deficit to more than 3 million bpd in July by some estimates.”

However, prior to the market’s positive response to Saudi Arabia’s announcement, oil prices faced downward pressure due to weak Chinese economic data and increasing US fuel inventories. China’s exports contracted more than anticipated in May, while imports also declined as manufacturers continue to struggle in finding overseas demand to complement sluggish domestic consumption.

Wednesday’s data also showed that crude oil imports into China, the world’s largest oil importer, rose to their third-highest monthly level in May as refiners built up inventories.

A JP Morgan note showed forward crude cover in the country has climbed, indicating refiners have not increased processing rates but are instead storing oil.

Meanwhile, U.S. gasoline inventories rose by about 2.4 million barrels and distillates inventories were up by about 4.5 million barrels in the week ended June 2, the American Petroleum Institute figures showed.

The unexpected build in fuel inventories raised concerns over consumption by the world’s top oil user, especially as travel demand grew during the Memorial Day weekend.

The U.S. Energy Information Administration (EIA) on Tuesday said that U.S crude oil production this year would rise faster and demand increases would be slower than previously expected.

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Markets

Weak Global Trade Weighs on Chinese Exports, Australian Growth Slows, Oil Slips Further

European indices and US futures look a little flat following a mixed session in Asia overnight, as Chinese trade data failed to inspire while Australian GDP pointed to further pain as the RBA continues raising rates.

Published

7 hours ago

on

June 7, 2023

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Traders Wall Street

By Craig Erlam, Senior Market Analyst, UK & EMEA, OANDA

European indices and US futures look a little flat following a mixed session in Asia overnight, as Chinese trade data failed to inspire while Australian GDP pointed to further pain as the RBA continues raising rates.

Disappointing trade figures increase calls for stimulus

Chinese trade data offered further evidence of weakening demand both domestically and abroad, with exports falling particularly hard last month. A 7.5% decline far exceeded the -0.4% expected, while imports actually beat forecasts, albeit while also falling 4.5% in May.

Weaker global trade is not a new story but it is surprising how quickly China’s reopening boost has faded, with backlogs of work supporting export numbers until now even as other countries have continued to see demand for their goods wane.

With China’s reopening boom flagging so quickly, pressure is set to intensify on the leadership to announce new stimulus measures in a bid to revitalize the economy again and achieve its 5% growth target. That may initially come in the form of rate cuts, perhaps targeted to those sectors under the most pressure with authorities so far reluctant to engage in broad-based easing.

Australian growth slows as high interest rates bite

The Australian economy is slowing amid cost-of-living pressures, weaker household spending, and higher interest rates. GDP in the first quarter slipped to 0.2%, down from 0.6% in the final quarter of last year and below expectations. High-interest rates and inflation are hurting household finances and the economy is now suffering. This week’s RBA hike is going to compound this and unless we see signs of price pressures easing, there may be more to come.

Oil remains under pressure after Saudi cut

Oil prices are falling again today as Saudi Arabia’s attempt to dress up a unilateral move as a group cut fails to have the desired impact. Crude is now trading below the level it ended at Friday which suggests that, despite the knee-jerk reaction on Monday, traders were hedging against broader action from OPEC+ and got a light version of the deal they feared.

While Saudi Arabia remains price driven, the market is more concerned with the economic outlook, and the rest of the alliance seemingly isn’t interested in taking more action in anticipation of what may come. The commitment from the start of the next year could easily change depending on what unfolds whereas markets are forced to respond to current risks and as far as the economy is concerned, they are tilted to the downside.

Gold awaiting further data following inconclusive reports

Gold is treading water again this morning, sitting right in the middle of the roughly $1,940-$1,980 range it found itself in these past weeks. The economic data we’ve had recently has been far from conclusive and that creates a lot of uncertainty around the policy path for interest rates and therefore appetite for the yellow metal.

Inflation has proven to be more stubborn than hoped while the labour market remains resilient, a combination that doesn’t point to US rate cuts later this year as traders currently hope. This is a big summer and all of that may soon change but for now, that uncertainty is creating this choppiness and range trading we’re seeing in gold.

Will the Binance and Coinbase sagas bring regulatory clarity to the space?

It’s been an explosive couple of days in the crypto space, with the SEC targeting Binance and Coinbase with lawsuits containing various allegations that have rattled the industry. Bitcoin initially fell more than 5% on Monday before recovering largely on Tuesday and now it’s trading only marginally lower, just below $27,000. While the initial response to the action was negative, it didn’t exactly come as a shock and the companies will have been preparing for such a move for some time.

Given the size of the two exchanges and the recent scarring from the FTX scandal, there will obviously be some concern about what comes next. But one good thing that will hopefully come from this is regulatory clarity which has been lacking for years now.

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Crude Oil

Global Oil Prices Appreciate to $77.85 After Saudi Announces Plan to Cut Production

Global oil prices appreciated on Monday morning following Saudi Arabia’s announcement that it will cut crude oil production by 1 million barrels per day (bpd) from the month of July to curb global economic headwinds weighing on the market.

Published

2 days ago

on

June 5, 2023

By

Crude Oil - Investors King

Global oil prices appreciated on Monday morning following Saudi Arabia’s announcement that it will cut crude oil production by 1 million barrels per day (bpd) from the month of July to curb global economic headwinds weighing on the market.

Brent crude oil, against which Nigerian oil is priced, rose by $1.72, or 2.3%, to $77.85 a barrel by 10:48 am Nigerian time while the U.S. West Texas Intermediate crude also climbed by $1.72, or 2.4%, to $73.46.

Both crude oils gained more than 2% on Friday after the Saudi energy ministry announced that the top exporter would reduce output from 10 million bpd in July to 9 million bpd in May 2024. The biggest of such reduction in years.

The voluntary cut is on top of a broader deal by the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia to limit supply into 2024 as the OPEC+ producer group seeks to boost flagging oil prices.

OPEC+ pumps about 40% of the world’s crude and has cut its output target by a total of 3.66 million bpd, amounting to 3.6% of global demand.

“Saudi remains keener than most other members in terms of ensuring oil prices above $80 per barrel, which is essential for balancing its own fiscal budget for the year,” said Suvro Sarkar, leader of the energy sector team at DBS Bank.

“Saudi will probably continue doing whatever it takes to keep oil prices elevated … and take calculated pre-emptive steps to ensure the macro concerns potentially affecting demand are negated.”

Consultancy Rystad Energy said the additional Saudi cut is likely to deepen the market deficit to more than 3 million bpd in July, which could push prices higher in the coming weeks.

Goldman Sachs analysts said the meeting was “moderately bullish” for oil markets and could boost December 2023 Brent prices by between $1 and $6 a barrel depending on how long Saudi Arabia maintains output at 9 million bpd over the next six months.

“The immediate market impact of this Saudi cut is likely lower, as drawing inventories takes time, and the market likely already put some meaningful probability on a cut today,” the bank’s analysts added.

Many of the OPEC+ reductions will have little real impact, however, as the lower targets for Russia, Nigeria and Angola bring them into line with their actual production levels.

In contrast, the United Arab Emirates (UAE) was allowed to raise output targets by 200,000 bpd to 3.22 million bpd to reflect its larger production capacity.

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