Nasdaq 100 Gains as U.S. Jobs Data Weakens

Also 10-year T-note, gold, crude oil and Australian dollar futures

1. Nasdaq 100 E-mini futures (/NQ): +0.73%
2. 10-year T-note futures (/ZN): -0.10%
3. Gold futures (/GC): +0.60%
4. Crude oil futures (/CL): -2.20%
5. Canadian dollar futures (/6C): +0.12%

The October U.S. job openings and labor turnover survey (JOLTS) report yesterday and the November U.S. ADP employment today (103,000 versus 113,000 expected) change paint a clear picture: The labor market is weakening. There are fewer job openings, and fewer people are finding work. For now, bad news is good news for traders, as the data further cement the idea that the Federal Reserve is finished with its rate hike cycle and that the cutting cycle may begin as early as March 2024. The key phrase is “for now.” The onset of recession typically means bad news becomes bad news, plain and simple. We haven’t crossed that Rubicon, yet.

U.S. equity markets are pressing higher in the wake of the ADP employment change report, with the Nasdaq 100 (/NQZ3) leading the way higher. For both /NQZ3 and the S&P 500 (/ESZ3), the better part of the past three weeks have produced choppy, sideways price action with minimal directional advances. This may prove to be a point of concern as volatility has dropped and U.S. yields have moved lower during this timeframe, but equities have had a difficult time capitalizing on a theoretically friendlier environment.

U.S. Treasury bonds are mixed midweek as it appears the bulk of Fed rate cuts are meaningfully discounted through the end of next year. In fact, five 25-basis-point (bps) rate cuts are fully priced-in, with a 40% chance of a sixth cut by December 2024. There may be some reconsideration ahead, as the scope and scale of these rate cuts don’t comport with an economy in the middle of a “soft landing” but instead one going through your garden-variety recession. The near-term move higher by bonds may soon face a reality check when the Federal Open Market Committee (FOMC) meets for its December rate decision next week.

Gold prices (/GCG4) moved higher this morning following U.S. labor market data that showed cooling job growth for November, along with a downward revision for October’s data. That bolstered expectations for a Fed rate cut in the first half of next year, which would make precious metals more attractive to investors. Friday’s U.S. non-farm payrolls report may send gold higher if it confirms the private payrolls data.

Despite OPEC+’s extension to production cuts announced earlier this week, crude oil (/CLF4) moved lower for a fifth day. The Failure to spur some upside movement in oil markets is likely discouraging for OPEC+ leaders, who may decide to counter the bearish market sentiment with some jawboning over the coming weeks, which would likely include the possibility to extend or even deepen the production cuts. However, that may not be enough to overcome weakness out of China and ample U.S. exports flooding across markets. For now, the bears remain firmly in control but there may be some profit-taking over the near-term with prices down over 21% now from early October.

The Bank of Canada (BoC) is expected to hold rates steady for a third consecutive meeting today, as policymakers attempt to balance its decision with market participants, who see aggressive cutting next year on the back of heavily subdued economic growth and extremely poor home affordability. If the BoC isn’t careful, it could push markets too far in expecting rate cuts, which would undermine the impact from its rate hikes earlier this year. Still, the Canadian Dollar (/6CZ3) performed well in November, pivoting higher from its 2023 low. For bulls who expect the BoC to stay slightly more on the hawkish side, buying into weakness could make sense.

Christopher Vecchio, CFA, tastylive’s head of futures and forex, has been trading for nearly 20 years. He has consulted with multinational firms on FX hedging and lectured at Duke Law School on FX derivatives. Vecchio searches for high-convexity opportunities at the crossroads of macroeconomics and global politics. He hosts Futures Power Hour Monday-Friday and Let Me Explain on Tuesdays, and co-hosts Overtime, Monday-Thursday. @cvecchiofx  

Thomas Westwater, a tastylive financial writer and analyst, has eight years of markets and trading experience. @fxwestwater 

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