Yesterday was a big one for US economic data. Both the JOLT’s labour market and the consumer confidence figures came in lower than expected, bolstering speculations that the Federal Reserve (Fed) may pause interest rate hikes this September and helping stock indices to rise.
Stocks climbed on speculation of rate hike pause
After two significant economic data releases that supported the notion that the Fed could stop interest rate increases in September, stock indexes gained, and bond yields fell at the start of yesterday's session.
The JOLT's labour market indicator for job openings surprised to the downside with a result substantially lower than what economists predicted: 8,827 million vs. 9,465 million expected; the data from the month of June was also revised downward to 9,165 million.
This could be the first significant indication that the Fed's tight monetary policy is having an impact on the labour market. Investors will be anticipating the release of the nonfarm payrolls and the unemployment rate tomorrow, which may confirm this pattern.
Consumer confidence came out below estimates
The second statistic released yesterday was consumer confidence, which was similarly significantly below expectations (106.1 vs. 116.0 predicted), indicating that interest rates have had an impact on spending in the same way that the JOLT data has.
The market's immediate response was to buy bonds, which led to a decrease in bond yields and purchases in the stock market.
Technological sector index Nasdaq surged more than 1%
The 10-year bond dropped to 4.14%, or over 7 basis points, and the indexes recovered, rising more than 1% on the Nasdaq Composite, the sector most sensitive to changes in interest rates.
The Personal Consumption Expenditure (PCE) data, which will be released tomorrow, is expected to be decisive in this regard as the Fed will pay close attention to labour market changes in the hope that it will loosen up a bit to avoid wage tensions. The inflation data will therefore determine how long interest rates will stay at their current levels rather than whether they will be raised again.
Will PCE data tomorrow strengthen the US Dollar?
If the PCE data remains clearly resistant to falling, market interest rates (bond yields) should resume the upward pressures that we have seen throughout the month of August, which would have a negative impact on the stock market and cause the US Dollar to strengthen. Yesterday the US Dollar was not overly impacted by the decline in market interest rates.
TECH100 monthly trading chart August 30, 2023. Sources: Bloomberg, Reuters
- Stocks indices rose and bond yields fell early yesterday.
- JOLT’s labour market figures came in lower than expected.
- The US labour market is showing signs of feeling the pressure of the restrictive monetary policy.
- This has spurred the opinion that the Fed could pause rate hikes next month.
- Markets await the nonfarm payrolls and the unemployment rate on Friday.
- Consumer confidence also came in below estimates.
- Markets reacted by buying bonds, causing bond yields to fall.
- The Nasdaq index rose by more than 1%.
- The release of the PCE data tomorrow may shed more light on the direction of interest rates.