Markets:
- Gold down $20 to $2496
- US 10-year yields down 1.4 bps to 3.72%, 2-year yields down 9.3 bps to 3.65%
- WTI crude oil down $1.07 to $68.08
- S&P 500 down 1.7%
- JPY leads, AUD lags
Non-farm payrolls Friday lived up to the hype, though it wasn’t exactly straightforward. The kneejerk reaction to the report was dovish and the US dollar sold off significantly as 50 bps cut odds rose to 57%. In that move the euro rose to 1.1154 from 1.1105 and the pound rose 60 pips to 1.3240.
It took about an hour for those moves to fade completely as the market took a second look at the jobs report and started having questions about whether the headline miss and revisions were enough to make up for a slightly improved unemployment rate. The retracement was compounded by Williams, who offered little in the way of a push for 50 bps, instead playing it safe.
The next big move came with the Fed’s Waller. Initially the market latched onto his talk about front loading cuts:
I will be an advocate of front-loading rate cuts if that is appropriate.
However the market then took a look at the totality of the speech and particularly a line saying the “labor market is softening but not deteriorating.” That led to a drop in 50 bps cut odds to 23%.
But there is always reflexivness in markets and that, in turn, caused a rout in stocks and a flight to safety in bonds. That’s a classic case of market kicking-and-screaming that pushed 50 bps odds back up to 31%. For his part, Timiraos weighed in on the 25 bps side but I certainly wouldn’t take that as a leak, though it probably moved markets.
The major volatility in the day came in USD/JPY, which ranged from 141.79 to 143.89 and ultimately finished about 50 pips from the lows. But there were 5 touches on either side of that range as the remarkably-volatile trading continues. 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 released as Canadian unemployment ticked up to 6.6% from 6.4% and is now two percentage points above the lows. The lack of 50 bps from the BOC this week is a troublesome sign of central banks that are behind the curve and a close in brent at the lowest since 2021 certainly doesn’t help the loonie’s case.