Stocks are slightly lower as calm emerges in the bond market. Wall Street is still seeing a lot of strength in the labor market. The S&P 500 index turned negative after slightly lower-than-expected weekly jobless claims. The risk for higher rates remains as a labor market slowdown was supposed to happen before the holiday hiring season.
Positioning ahead of tomorrow’s NFP report will likely be limited given it seems most leading indicators suggest job growth will remain healthy, which should keep the bond market selloff going strong. A strong headline number will likely be expected given we only saw the ADP private payroll miss. ​ Eventually the surging cost of capital will support a softening of the labor market, but it doesn’t seem like that will be reflected in tomorrow’s report.
As companies are getting ready to show their books to investors next week, in the quarterly ritual known as earnings season, traders want to know if third quarter results come in as good as the first half of the year. The banks kickoff earnings at the end of next week and it seems many are expecting the financials to highlight a much weaker consumer given surging delinquencies and exhausted excess savings. Pessimism for the consumer won’t be going away anytime soon and that is probably why stocks are selling off today. ​ ​
US Data
The last labor market reading before the NFP report provided another reminder that the labor market is still strong. Worker filings for unemployment benefits held steady at 205,000 in the week ending on September 30th. The UAW strikes have yet to really impact the data as Michigan saw only 1,282 claims, Ohio had 1,422, and Missouri only had 532.
The Challenger, Gray & Christmas report showed planned job cuts fell from a 266% year-over-year pace in August to 58%. Companies announced plans to fill over 590,000 jobs last month, which was up 55% from a year ago.
FX
The US dollar is softer across the board as FX traders reduce positions ahead of a key jobs report. The higher-for-longer trade has mostly been priced in for the dollar against all of its major trading partners. CFTC data shows leveraged funds have ramped up dollar futures contract bets to the best levels since June. Unless we see US job growth fall below 100,000, the king dollar trade might remain in place a little while longer.
Oil
This oil market reversal must be frustrating the Saudis. Brent crude has fallen over $10 since the end of last month as surging global bond yields have crippled the global growth outlook. Energy stocks have gone from Wall Street’s best trade to it is time to abandon ship. US gasoline demand destruction is intensifying and given how overbought the energy market was in September, momentum oil selling has been fierce.
When oil prices tank, it is hard to estimate where prices could find support. Brent crude’s five-day plunge however could find support around the $83 level, which is around both the 100- and 200-day SMA. If China’s outlook continues to improve, we could easily see a return back to the $90 level. Further bearishness could also trigger further output cuts by OPEC+. OPEC+ worked hard to get oil back to $90 a barrel and they will likely continue to do whatever it takes to make sure we don’t see prices return to the lows of the year, which is around the $70 level.
Gold
Gold prices are softer after another weekly jobless claims report refused to show a labor market slowdown has arrived. Jobless claims are still at historically low levels and that will keep Fed officials sticking to the hawkish script. Wall Street is still mostly maintaining a bearish stance for equities, which should eventually lead to safe-haven flows for gold. Gold just needs the peak in rates in place but we might not have a clear picture until the release of both Friday’s US jobs report and the October 12th inflation data.
