Clear indications of a robust US labour market yesterday brought about fears that the Fed may raise rates again this year. This uncertainty brought treasury bonds to their highest levels since 2007 and also brought volatility to the stock and foreign exchange markets.
US job openings for August rose by 9.6 million
According to the JOLT Job opportunities Survey report from the U.S. Department of Labour released yesterday, which is a measure of labour demand, there were unexpectedly more job opportunities in August than expected. The job openings rose by about 9.6 million, well above the expected 8.8 million. This caused high volatility in the markets.
This data, which often does not deviate significantly from analyst projections, is a clear sign that the labour market is still very strong. The numbers show the opposite effect of what the Federal Reserve (Fed) is trying to do in its fight against inflation.
Uncertainty about the Fed raising rates again resurface
In light of this, fears that the Fed may need to raise rates again this year mounted and the yield on 10-year and 30-year Treasury bonds reached their highest levels since 2007 yesterday. It seems that markets are preparing for a restrictive monetary policy for a long period of time.
This huge rise in Treasury yields came even after FOMC official Raphael Bostic said there was "no urgency" for the Fed to raise rates again. Although some officials did previously support the notion of keeping monetary policy tight, this is not the general view amongst voting members of the Fed.
The stock market was very much impacted by the sudden increase in interest rates that occurred yesterday as a result of the JOLT figure. The North American indices experienced general declines, but the technological Nasdaq, which is the index most sensitive to interest rates, collapsed with losses of over 2%. Among the technology companies with the highest capitalisation, Amazon stood out with a drop that reached 4% during the session.
Will the Bank of Japan step in to save the Yen?
However, the storm wasn't limited to the stock market. The Dollar surged in the foreign exchange market due to its strong correlation with interest rates, while the Yen was the source of volatility.
USD/JPY slightly exceeded the threshold of 150, a level at which the Bank of Japan had intervened a year ago by selling Dollars to stop the fall of the Japanese currency.
It seems that history may repeat itself. Although the Japanese Ministry of Finance has not officially confirmed the intervention, the abrupt collapse of the USD/JPY, almost 300 pips, leaves no room for doubt.
As the Japanese authorities have made it clear to the market that they do not want to see the pair above 150, downward pressure was seen throughout the market session.
AMZN monthly chart, October 4, 2023. Source: CAPEX.com WebTrader.
Key Takeaways
- US job openings for August rose by around 9.6 million, much more than expected.
- The indication of a strong labour market has resurfaced the idea that the Fed may raise rates again this year.
- Treasury bonds reached their highest levels since 2007.
- FOMC official Raphael Bostic stated there is “no urgency” for rates to be raised again.
- North American stock indices fell.
- USD/JPY slightly exceeded the 150 threshold.
- The Bank of Japan may intervene to make sure the Yen does not fall further.
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Sources: Bloomberg, Reuters
