The Treasury market reversed course, with yields dropping, after softer jobs opening data bolstered speculation the Federal Reserve is approaching the end of its aggressive rate hiking campaign.
Vacancies dropped to the lowest since May 2021, suggesting a cooling in labor demand in some industries but still indicative of a job market that is too tight for the Federal Reserve. The number of available positions decreased to 9.9 million, from a downwardly revised 10.6 million a month earlier according to the JOLTS data. Analysts had expected 10.5 million openings.
The data, which can be volatile on a monthly basis, suggests labor supply and demand are moving into better balance but further progress is needed to help alleviate wage pressure. As widely noted, enduring strength in the job market remains a key hurdle for the Fed as it seeks to bring inflation down to its 2% goal.
The quits rate, which measures voluntary job leavers as share of total employment, edged up to 2.6%.
The ratio of openings to unemployed people slid to 1.67 in February, the lowest since November 2021, from almost 1.9 in the prior month. Pre pandemic the ratio was about 1.1 according to Bloomberg.
The data caused the yield curve to steepen as the two-year Treasury declined almost 20 bps in yield.
Equites led by the financials and technologies, however, sold off.
First quarter earnings season commences next week. The S & P 500 is already set for a so-called earnings recession, with three quarters of negative EPS growth commencing in 4Q22, 1Q23 and 2Q23. For the first two quarters of 2023, analyst estimates have been steadily coming down.
According to Bloomberg, first quarter EPS is projected to fall 8% as of March 31, compared with a 1.4% growth at the start of 2023. The 2Q profit estimate has worsened to a 6.2% decline from a 2.2% decline several weeks ago.
Third quarter estimated growth is 0.7%–but compared that to 4.6% at the start of the year and the spate of negative profit warnings of the past several weeks, Citicorp suggests that third quarter profits may also contract.
Some have argued equity markets are in a precarious position. The Federal Reserve has been adamant that it will not pivot in 2023. Markets suggest such a pivot will occur in June/July. And then there are profits.
Valuations are dictated by corporate cashflow dictated by an interest rate. Neither have great clarity.
What will happen today? The ISM Services Index is released as is the ADP Private Sector Employment Survey and Trade Balance. How will the data influence trading?
Last night the foreign markets were down. London was up0.40%, Paris down 0.15% and Frankfurt down 0.27%. China was up 0.49%, Japan down 1.68% and Hang Seng down 0.66%.
Futures are nominally lower amid worries over inflation. The 10-year is off 3/32 to yield 3.35%.
