Nasdaq and Oil continue to slide

Wall Street maintained its "risk off" sentiment this morning even as Treasury yields took a breather after recent rises. The dollar weakened against major cross rates. Nasdaq fell hardest, off 1.1%. Oil prices slipped back to $83 on continued profit-taking. The VIX traded up to 19 trade, reflecting elevated fear levels. All eyes are on tomorrow’s critical jobs data, with today’s data pointing to a tight labor market and continued hiring. Tomorrow’s key Non-Farm Payroll numbers are forecasts of 170,000 new jobs added and a 3.7% unemployment rate.

Bottom line: risk-off.

TODAY’S MAJOR NEWS

The labor market is tight, with few signs of layoffs

The labor market remains very tight based on unemployment benefit claims and the Challenger job-cut report. Yesterday’s ADP report showed signs of possible softening in the jobs market, but it was perhaps an outlier. Traders are waiting to see tomorrow morning’s government jobs report for confirmation.

• First-time claims for unemployment benefits rose modestly to 207,000 in the week ending September 30, up from 205,00 the previous week
• The four-week moving average fell to 208,750 claims, down from 211,250 the previous week
• Continuing claims for the week ending September 23 fell marginally to 1.664 million, a historically low number
• Today’s Challenger job-cut report reports that layoffs fell to 47,457 in September, down from 75,151 last month

Rising Treasury yields create headwinds for the economy

The Fed has received most blame for rising Treasury yields, but this isn’t perhaps the best explanation. Investors are dumping bonds as they anticipate a much larger supply in the months ahead from new issuance and sales by investors from China and Japan. The great ‘bond liquidation’ pushes yields higher, raising economic risks. The federal government continues to spend beyond its means – now borrowing money to pay the interest on its rapidly increasing debt. The federal deficit is up 156% over the past year due to lower capital gains, smaller salary bonuses, larger tax refunds, and a 10% increase in government spending.

The US Treasury is expected to increase the offerings of debt certificates at Treasury auctions by an average of 23% across the yield curve in 2024, requiring the market to push yields higher to attract sufficient buyers to absorb the increased supply. The resulting higher yields are expected to squeeze private sector credit, reducing investment funds available for personal sector development. That can lead to a recession while fueling higher costs for doing business, which has implications for the commodity markets.

Mortgage rates jump to 23-year high

Mortgage rates hit a 23-year high this week, increasing the likelihood that they could soon hit 8%. The rate on the average 30-year fixed mortgage increased to 7.49% from 7.31% the previous week, according to Freddie Mac, tracking the rise in 10-year Treasury yields, which spiked to a 16-year high this week. Unsurprisingly, consumers have curbed their enthusiasm to

TODAY’S MAJOR MARKETS

Nasdaq falls hardest in weak equity markets

• Nasdaq again fell hardest in morning trade, off 1.1%, with the S&P 500 and Russell 2000 down 0.8% and 0.5%, respectively
• Foreign markets rallied overnight, with the Nikkei 225 and FTSE 100 up 1.8% and 0.5%, respectively, while the DAX was unchanged
• The VIX, Wall Street’s fear index, rose to 19.1

Bonds stabilize, dollar falls back

• 10-year yields traded down marginally to 4.71%, and 2-year yields fell back to 5.02%
• The dollar index fell 0.3% to 106.5
• Versus the dollar, the Yen and Sterling were up 0.4%, while the Euro was up 0.3%

Oil and gold see selling pressure

• Crude oil prices continued to fall, down 1.5% to $83 per barrel
• Spot gold prices fell 0.3% to $1,830 per ounce, while silver fell 1.0% to $20.9 per ounce
• Grain and oilseed markets were mostly higher on chart-related trading
• A surge in corn export sales lifted the lead December contract above chart resistance at the top of its recent trading range
• Wheat prices started the day consolidating higher within their current trading range, with strength in corn providing some tailwinds
• This pulled the soybean market higher as well, where speculative fund managers have been building short positions

Analysis by Arlan Suderman, Chief Commodities Economist: Arlan.Suderman@StoneX.com

Market outlook by Paul Walton, Financial Writer: Paul.Walton@StoneX.com