Recession fears evident in jobs data, rate hike expectations fall

Stocks came under pressure on job openings and factory orders data, with the numbers falling short of expectations in both cases, raising recession fears while also increasing speculation of a pivot by the Federal Reserve. More jobs data will be released daily as we proceed through the week, meaning that markets will continue to be susceptible to headline risk.

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Fed fund futures trading suggested 60% odds of another 25-basis point rate hike priced in ahead of this morning’s economic data release, to 5.0%, with expectations that the benchmark rate would be back down to 4.25% by December. Treasury yields fell notably following the data release, and ushered in selling of the dollar as well.

Jobs data suggests weakening economy

The ADP private sector jobs report is scheduled for release tomorrow morning, with expectations that it will show that the economy created another 200,00 private sector jobs in March, down from 242,00 the previous month. Weekly jobless claims data will be released on Thursday, with expectations that the number will remain around 200,000 claims.

The big government monthly jobs report is released on Friday morning, and is expected to show that the economy created 240,000 jobs in March, down from 311,000 in February. However, it’s also expected to show that the unemployment rate remains very low at 3.6%, with average hourly earnings up 4.3% year-on-year.

Indices weaker, Bonds stronger

• At the time of writing, the broad S&P 500 index and the tech heavy NASDAQ were off half of a per cent at 4,104 and 12,140, respectively
• The VIX, Wall Street’s fear index, traded up to 19.3 reflecting increasing concerns
• The dollar index was half of a per cent lower at 101.3, with £/$ 1.25 and €‎/S 1.09
• Yields on 2- and 10-year Treasuries were stronger at 3.87% and 3.36%, respectively

Oil flat, Gold continues to rally

• Crude oil prices was unchanged at $80.6 per barrel
• Gold continued its strong run, up almost 2% to $2,038 per ounce
• Grain and oilseed prices are mostly lower as well, although wheat prices are returning to positive territory, supported by poor winter wheat crop ratings

Real economy and jobs market weakens

• A larger-than-expected drop (-0.7%) in factory orders in February to raise fears that we are on our way to a recession.
• Today's Job Openings and Labor Turnover Survey (JOLTS) report indicated that there were 9.931 million job postings at the end of February, short of the forecast 10.4 million, and the lowest in nearly two years
• While job postings just shy of 10 million is still a lot, well above the 5 - 6 million people looking for a job, but it still provides the most significant evidence to date of an easing jobs market
• Traders will now look to tomorrow's ADP private sector jobs report, and Friday's monthly government jobs report, for confirmation of an easing jobs market

China not planting as much GMO corn as expected

• Just 1% of the corn planted in China will contain genetically modified traits this year, according to industry experts who spoke on the sideline of a recent conference in China
• This is a big disappointment to authorities who cleared GMO corn for mass planting this year amid hopes that China would be planting 90% of its acreage to GMO corn within five years
• Trend yields in China are just over 100 bushels per acre, which is far below the 181.5 bushels per acre forecast by USDA for the US crop this year
• China advanced GMO technology this year in hopes of changing that, and thereby dramatically reducing its dependency on importing critical food commodities

US/Chinese friction likely on Taiwan meeting

• US House Speaker Kevin McCarthy confirmed his intentions to meet with Taiwan President Tsai Ing-wen tomorrow when she stops in California on her way back to Taiwan from her trip to Central America

Analysis by Arlan Suderman, Chief Commodities Economist.

Read more of Arlan’s thoughts at StoneX Market Intelligence at https://my.stonex.com/