The FP Markets Research Team produces First Light News during the early hours of the European session, a daily Market Briefing that helps ensure traders and investors are up to date in the macro space for the day ahead.

Good morning.

US ISM services PMI (for November) and the US JOLTs Job Openings (for October) claimed the macro spotlight in early US trading on Tuesday.

According to the Bureau of Labor Statistics (BLS), job openings clocked a two-year low, declining more than 600,000 to 8.7 million in October, down from 9.3 million in September. This marks a sizeable decline and is considerably south of the peak of 12 million job openings in early 2022.

Hires were little changed in October at 5.9 million. The quit rate—voluntary job leavers—was little changed at 3.6 million (2.3% for the fourth consecutive month), its lowest level since 2021. Note that the long-term average for the quit rate is around 2.0%, so we are still above this threshold. All in all, this adds to a softening labour market and helps bolster bets that the Fed are done and dusted with rate increases in this cycle. Market pricing, as of writing, is for 128bps of cuts in 2024.

However, this week also brings additional (timelier) job numbers to work with; today will see November’s ADP employment release, followed by tomorrow’s weekly jobless filings for the week ending 2 December and November’s NFP print on Friday.

US ISM services expanded in the month of November to 52.7, up from 51.8 in October amid an acceleration in business activity (comfortably north of the 50.0% expansion threshold). The new orders component remained unchanged at 55.5 and prices paid eked out a marginal decline to 58.3 from 58.6 (which, of course, will be encouraging for the Fed), while the employment component increased to 50.7 from 50.2 over the same period (first increase in three months).

Chair of the Institute for Supply Management ISM Services Business Survey Committee, Anthony Nieves, noted: ‘The services sector had a slight uptick in growth in November, attributed to the increase in business activity and slight employment growth. Respondents’ comments vary by both company and industry. There is continuing concern about inflation, interest rates and geopolitical events. Rising labor costs and labor constraints remain employment-related challenges’.

Looking Ahead

Overnight, GDP numbers were welcomed from Australia, showing that the Aussie economy barely displayed any growth in Q3. Real GDP grew by 0.2%, driven by increased government consumption and capital investment. This will be welcomed at the Reserve Bank of Australia (RBA), reducing the pressure to tighten policy further. The impact was limited across the financial space following the release; a mild spike lower unfolded on the AUD/USD though the move was short-lived.

Today’s focus shifts to the November US ADP non-farm employment release at 1:15 pm GMT and the Bank of Canada (BoC) rate announcement at 3:00 pm GMT.

According to the median estimate for the ADP release, the US economy is expected to have added 130,000 new payrolls in November, up from October’s 113,000 print; interestingly, the estimate range is between 180,000 and 50,000. While some consider this release a precursor to Friday’s government print, its record is spotty. However, softer-than-anticipated data today would likely see intraday sellers make a show.

The BoC is widely expected to follow the RBA and hold its Overnight Target Rate at 5.0%, marking the third consecutive meeting where the central bank left rates unchanged. As you will recall, October’s accompanying policy statement communicated that inflationary risks have escalated and that the central bank is prepared to increase the Overnight Rate if needed. Much of today’s attention, therefore, will be directed towards the post-rate statement to assess any language change. Recent data has demonstrated signs of softening: inflation slowed to 3.1% year on year, unemployment rose to 5.8% and economic activity contracted to 1.1% in Q3. According to market pricing, the central bank is finished with rate hikes and forecast the first 25bp rate cut as early as March (70% probability), with 2024 expected to welcome 100bps of cuts throughout the year.

Markets

The US dollar advanced again on Tuesday, cementing its position north of the 200-day simple moving average (SMA) at 103.57 and resistance on the daily timeframe at 103.62, according to the US Dollar Index. Daily resistance now calls for attention at 104.15. The Aussie dollar was the clear laggard in G10 FX yesterday, weighed by the RBA rate announcement and dollar upside.

Major US equity indices concluded the session mixed on Tuesday. The Dow Jones Industrial Average eased 79 points (-0.2%) to 36,124, the S&P 500 dipped 2 points (-0.06%) to 4,567, while the Nasdaq 100 rose 38 points (+0.2%) to 15,877. In terms of sector performance, energy took a hit, dropping -1.7%, followed closely by materials stocks, down -1.4%; outperformance went to tech stocks, up +0.8%.

For commodities, spot gold (XAU/USD), after a fleeting moment of greatness at all-time highs of $2,148, has pulled back within striking distance of the widely watched $2,000 barrier. WTI oil also pencilled in a fourth consecutive session on the back foot and clocked lows of $72.00/bbl, the lowest since the middle of this year.

In the crypto space, BTC/USD is on a tear, hovering around $43,000. This week alone (all two days of it), the major crypto is up nearly 10.0%. Technical resistance, however, is currently in play between $46,112 and $42,971 on the weekly timeframe, an area bolstered by a robust overbought signal out of the Relative Strength Index (RSI).

Weekly Chart of BTC/USD:

(Trading View)

G10 FX space as of 08:35 am GMT:

(Trading View)

Thanks for reading. Have a great day.

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