With the release of a report yesterday showing that US job openings fell to their lowest levels since 2021, the market now has a clearer sign that the Federal Reserve (Fed) may have no choice but to stop raising interest rates.
The US job vacancies report released yesterday showed that job openings fell to their lowest levels since May 2021.
The released showed that job vacancies in February fell to 9,931 mln, down from the 10,400 mln expected. This surprised the market, which is now even more convinced that interest rates in the United States will be much lower than previously thought.
The rates on US Government bonds plunged in all maturities, with particular impact within the shortest tranche of the curve, as investors await the release of the non-farm payroll statistics on Friday, which may confirm the deterioration of the job market in the United States. The 2-year note dropped 15 basis points to 3.85%, sending the Fed a clear message that interest rates should remain below current levels for some time.
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If the upcoming labor market data confirms the weakening of the labor force, in addition to the concerns surrounding the financial stability of the American regional banks, the Fed will have to stop raising interest rates and will probably be driven to decrease them as soon as the end of the year.
Given this perspective, the markets reacted inconsistently.
As a result, the market indices retreated slightly from the levels they had reached just before the release of the data. Although it is true that some equities would not gain in the event of an economic downturn, a decline in market interest rates should, in theory, be a factor strengthening the stock markets. Regardless of the outcome, the action can be seen as a typical "buy on the rumor, sell on the news" correction.
Due to the likelihood of a decrease in interest rates, the US Dollar performed as expected, falling significantly.
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The EUR/USD pair broke higher, reaching its highest levels since the beginning of last February, driven in part by speculations about more aggressive rate increases by the European Central Bank.
The shift in the GBP/USD exchange rate, which was partly influenced by remarks from Bank of England officials in favor of further rate increases, was even more forceful. The price of the pair reached its highest point since June 2022.
The performance of gold was the most impressive of all the assets, as it broke through the $2,000 barrier and reached $2020 under the guidance of the falling Dollar and the market's expectations of falling interest rates. From a technical standpoint, this clears the way for the all-time highs of 2070.
Sources: Bloomberg, Reuters