3 Numbers: Job openings rebound expected for June
- Solid gains in US payrolls imply a rebound for June job openings
- The 2-year Treasury yield isn’t pricing in a rate hike for next Fed policy meeting
- Recession worries will probably weigh on GBPUSD for the foreseeable future
By James Picerno
The release schedule for macro lightens today, putting the focus on the monthly report for job openings in the US.
Also, keep your eye on the 2-year Treasury yield, which has remained relatively steady this week as traders downplay the odds of a Federal Reserve rate hike announcement at next month’s Federal Open Market Committee meeting. Meantime, recession forecasts will continue to weigh on GBPUSD.
US: Job Openings & Labor Turnover Survey (1400 GMT) The upbeat news on the labour market in July suggests that today’s numbers on job openings will perk up after stumbling in May.
The key event, of course, is last week’s solid gain for nonfarm payrolls in July, which followed an even stronger surge in newly minted positions in June.
On Monday, the good news continued with the bounce in the Federal Reserve’s multi-factor Labor Market Conditions Index (LMCI), which revived to a positive 1.0 reading – the first above-zero print this year.
“The stabilisation in the LMCI over the past two months is encouraging and offers evidence that the swoon in the labour market data in the second quarter was an aberration,” an economist at Jefferies, an investment bank, observed this week.
The positive spin on the economic outlook will resonate a bit deeper if job openings stabilise or rise in today’s June update.
In the previous report, job openings slumped by 345,000 to 5.5 million in May – the biggest monthly setback in nearly a year, leaving the level of new positions at the lowest number in five months.
But employment data of late paint a brighter profile and so it’s likely that job openings will pop in today’s figures for June.
The probability of leaving Fed funds unchanged at the current 25-to-50-basis-point level at next month’s FOMC meeting is still high – 82%, based on CME’s reading of futures data as of Tuesday. No change is also the current market view for the November meeting. December, however, is when the crowd smells relatively elevated odds for a rate hike via Fed funds futures.
Is the rate-expectations-sensitive 2-year yield telling us otherwise? No, not really, although this widely followed maturity bears watching in the days ahead for hints of any change in sentiment. For now, however, the 2-year rate is still close to recent low of 0.56% in early July, based on daily data from www.treasury.gov.
The current 0.72% rate (as of midday Tuesday) suggests that the Treasury market is on board with the general view that a September rate hike is a low-probability event.
“The market is caught between this fundamental improvement [in job growth], or what seems like a continuation of the strength of the US economic picture, and a Fed that is likely on hold in the near- to mid-term,” an interest-rate strategist at BMO Capital Markets opined earlier this week.
The outlook would change is the 2-year yield rises substantially to the 0.9% level or so. But at the moment the Treasury market is effectively looking for the Fed to stand pat until at least the end of the year.
The National Institute of Economic and Social Research cut the three-month growth rate for the economy in half to 0.3% for the three months through July. The “marked economic slowdown”, leaving output at the slowest pace in a year, implies that more deceleration is coming. “Our estimates suggest that there is around an even chance of a technical recession by the end of 2017,”a NIESR spokesman said.
That's a key reason for expecting GBPUSD is likely to grind even lower in the months ahead. A weaker pound is hardly a surprise at this late date. In the wake of the Brexit vote in late June, the GBP crashed against the greenback and has been stuck in a trading range between roughly 1.30 and 1.32 ever since.
The technical profile for GBPUSD certainly doesn’t look promising either for expecting a rebound in sterling. Indeed, the 50-day moving average has tumbled far below its 100- and 200-day counterparts. Gravity, in other words, is set to weigh on the pound for the foreseeable future.
The question is whether another dramatic slide is near. The odds for a new leg down will shoot up if GBPUSD (trading just below 1.30 at midday on Tuesday) slips below the recent low of around 1.288.
– Edited by Adam Courtenay
James Picerno is a macro analyst/editor at CapitalSpectator.com. Follow James or post your comment below to engage with Saxo Bank's social trading platform.