The Impact of JOLTs Job Openings on The US Economy A Deep Dive into Fiscal and Monetary Policy

Economic

Summary:

The profound impact of the JOLTs Job Openings releases on the US economy, delving into its influence on fiscal and monetary policy. A high number of job openings can positively shape fiscal policies by reducing unemployment-related expenditures, boosting income tax revenue, and fostering consumer spending, while its implications on monetary policy include considerations for inflation pressures, interest rate decisions, and their effects on investor sentiment.

The Job Openings and Labor Turnover Survey (JOLTs) Job Openings release serves as a crucial indicator for assessing the health of the labour market in the United States. This monthly report, published by the Bureau of Labor Statistics (BLS), provides insights into the number of job openings, hires, and separations, shedding light on the dynamism and fluidity of the job market. A high or low JOLT job Opening number can have significant implications for the US economy, influencing both fiscal and monetary policy.

Impact on Fiscal Policy

1- Labor Market Health

A high number of job openings suggests a robust labour market with ample employment opportunities. This can positively influence fiscal policy by potentially reducing unemployment rates. As more individuals secure jobs, government expenditure on unemployment benefits decreases, allowing for the reallocation of funds to other areas such as infrastructure or social programs.

2- Income Tax Revenue

Increased employment opportunities lead to higher income levels for individuals. This, in turn, can boost income tax revenue for the government. A surge in job openings may contribute to a stronger fiscal position, enabling the government to address budgetary concerns, reduce deficits, or invest in key areas like education and healthcare.

3- Consumer Spending

A thriving job market positively affects consumer confidence and spending patterns. Higher employment rates often translate into increased consumer spending, further stimulating economic growth. This uptick in economic activity generates additional tax revenue for the government, supporting fiscal policies aimed at sustainable growth.

Impact on Monetary Policy

1- Inflation Pressures

A surge in job openings may signal a tightening labour market, putting upward pressure on wages. Central banks, including the Federal Reserve, closely monitor wage inflation as it can contribute to overall inflationary pressures. In response to such signals, the Fed might adjust interest rates to maintain price stability and prevent an overheating economy.

2- Interest Rate Decisions

The Federal Reserve considers employment data, including JOLT's Job Openings, when making decisions about interest rates. A high number of job openings might prompt the Fed to consider raising interest rates to prevent the economy from overheating. Conversely, a low number of job openings may lead to accommodative monetary policies, including lower interest rates, to stimulate job creation.

3- Investor Sentiment

JOLT's Job Openings figures also impact investor sentiment. A robust job market is generally viewed positively by investors, indicating economic strength. This can influence market expectations regarding future monetary policy decisions. Investors may adjust their portfolios based on anticipated interest rate changes, affecting asset prices and market dynamics.

To stay updated on all economic events of today, please check out our Economic calendar

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ING

Commodity

Energy

Energy – Saudi Aramco abandons capacity increase plans for now

ICE Brent softened yesterday and has been trading at around US$82/bbl this Tuesday morning after hitting a recent peak of above US$84.5/bbl as the focus shifts back to demand slowdown as Middle East uncertainty lingers. China has been taking supportive measures to help the faltering economy. However, there are still no clear indications of a strong demand revival. Meanwhile, higher prices on account of geopolitical reasons could further weigh on oil demand in the medium term.

Saudi Aramco has decided to abandon its plans to boost oil production capacity from the current 12MMbbls/d to 13MMbbls/d as the demand outlook remains uncertain. Earlier in November, the company announced plans to boost oil production capacity to 13MMbbls/d by 2027, forecasting higher demand from Asian countries – especially from India and China. Given the voluntary production cuts by Saudi Arabia to maintain market balance and softer prices, the additional capacity might have been considered unnecessary for now. Meanwhile, a recent survey from Bloomberg shows that Saudi Aramco might keep the official selling price of its Arab Light steady at US$1.5/bbl for its Asian customers for March sales.

Latest data from the US Energy Department shows that the Biden administration has purchased another 3.1MMbbl of oil for the Strategic Petroleum Reserve to be delivered in May 2024. For the current year, the purchases totalled 6.3MMbbls, while the government has bought a total of 20.13MMbbls of oil for the SPR since the beginning of 2023.

Recent market reports suggest that the capacity expansion for the Trans Mountain pipeline is once again delayed due to technical issues faced during the construction activities. The planned expansion of 890Mbbl/d is expected to nearly triple the existing capacity of the pipeline. Earlier, the pipeline was scheduled to start operating, with the expanded capacity starting next month with its first cargo being shipped from Vancouver in April.

Metals – Norilsk lowers nickel output estimates

Norilsk Nickel PJSC expects its metals production to fall this year as a major producing unit will undergo maintenance whilst the Ukraine war continues to impact the business. The company now expects its refined nickel production to drop around 12% YoY to as low as 184kt t in 2024. Last year, nickel production stood at 209kt. Among other metals, copper production fell 2% YoY to 425kt in 2023 due to declining ore grades and processes configured to improve copper cathode quality. Meanwhile, palladium production fell 4% YoY to 2.7moz, while platinum production rose 2% YoY to 664koz last year. For 2024, the company expects palladium production to fall by 15% YoY to 2.3moz in 2024. The company added that the risk associated with adverse geopolitical conditions will continue to impact its overall operations.

Meanwhile, Vale reported that iron ore production rose 10.6% YoY (+3.7% QoQ) to 89.4mt in 4Q23, quite larger than the average market expectations of 83mt. This was the highest quarterly average for any 4Q in the last five years, primarily due to the investments in its prized Amazonian operations and improving performance at its older mines in the southeast region. For 2023, iron ore production totalled 321.2mt, higher than the production guidance of 315mt for the year. Vale left its 2024 output guidance unchanged at 310mt-320mt. Meanwhile, SGX iron ore has been trading lower this morning as higher output numbers from Vale, along with the prolonged real estate crisis, are weighing on the raw material prices.

Agriculture - Vietnam coffee shipments rise

The General Statistics Office of Vietnam released trade volume estimates for January showing that coffee exports stood at 210kt, up 48% compared to 142.3kt reported a year ago. Vietnam coffee exports continue to benefit from the rise in Robusta coffee prices, primarily due to the supply shortages in the domestic market.

The USDA's weekly export inspection data for the week ending 25 January show that US corn shipments rose while wheat and soybeans exports eased over the last week. Export inspections for soybeans stood at 889.7kt over the week, lower than 1,185kt in the previous week and 1,931.1kt reported a year ago. Similarly, US wheat export inspections stood at 264.7kt, down from 315.2kt a week ago and also lower than the 446.1kt seen last year. For corn, US export inspections came in at 902kt, compared to 746.9kt from a week ago and 544.5kt reported a year ago.

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Economic

Forex

Dollar shines in early 2024

It's been a phenomenal start to 2024 for the US dollar, which has already risen more than 2% against a basket of major currencies as a streak of encouraging economic data reinstilled confidence in the US economy, forcing traders to dial back bets of immediate Fed rate cuts.

Economic growth has been faster than expected, empowered by strong consumption trends and heavy government spending. With the labor market also in good shape, it is becoming clearer that there's no urgency to slash interest rates. Inflation has been cooling off, but is still far too high for the Fed to declare victory. Nonfarm Payrolls to Decide the Dollar's Fortunes_1

Nonfarm Payrolls to Decide the Dollar's Fortunes_1

In this light, market participants have started to scale back bets around how quickly and how deeply the Fed will cut rates this year. The prospect of a rate cut in March is now priced as a 50-50 coin toss, which puts even more emphasis on incoming data to decide whether the Fed will pull the trigger or not.

Labor market still tight

Turning to the upcoming data releases, the ball will get rolling on Wednesday with the private ADP employment report for January alongside the employment cost index for Q4, which measures wage growth.

On the same day, Fed officials will deliver their interest rate decision. Expectations of any policy changes are low, so investors will focus mostly on the commentary by Chairman Powell about whether rate cuts are on the horizon. The ISM manufacturing survey for January will follow on Thursday.

Then on Friday, the spotlight will fall on the latest employment report. Nonfarm payrolls are projected to have risen by 180k in January, slightly less than the 216k recorded in the previous month but still a solid number overall. The unemployment rate is forecast to have ticked up to 3.8%, while wage growth as measured by average hourly earnings is seen holding steady at 4.1% in yearly terms.

Nonfarm Payrolls to Decide the Dollar's Fortunes_2

As for any surprises, early indicators point to another decent jobs report. Applications for unemployment benefits fell sharply in January, so there were no signs of mass layoffs in the US economy. Similarly, the number of advance layoffs filed under the WARN Act, which forces big businesses to notify workers about mass firings in the next two months, remained very low.

In the markets, an employment report that tops estimates could lead to a further unwinding of Fed rate-cut bets, which would likely benefit the dollar. Looking at the euro/dollar chart, such an outcome might push the pair lower, perhaps towards the 1.0720 support region.

On the other hand, a dataset that misses expectations could fuel the opposite reaction and propel euro/dollar higher, with the first barrier on the upside likely to be the congested 1.0870 zone.

Dollar remains attractive overall

In the bigger picture, the outlook for the dollar still appears positive. In terms of growth, the US economy is much stronger than other major regions like the Eurozone, which barely avoided falling into a technical recession last year.

Nonfarm Payrolls to Decide the Dollar's Fortunes_3

Markets are currently pricing an equal amount of rate cuts in the US and Eurozone this year. However, with growth differentials clearly in favor of the US, there's a strong possibility the Fed will cut rates at a slower pace than the European Central Bank, boosting the dollar through the interest rate channel.

One element that has prevented the dollar from appreciating significantly in this environment has been the explosive rally in stock markets, which has dampened demand for safe haven assets. That said, this dynamic cut both ways. If the equity market loses steam or suffers a correction, it might become easier for the dollar to advance, as risk appetite deteriorates.

To stay updated on all economic events of today, please check out our Economic calendar

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Saif

Economic

Forex

The foreign exchange market, or Forex, is renowned for its sensitivity and impact, with the Euro to US Dollar currency pair standing out as one of the most closely watched pairs by investors and traders. This pair is influenced by a myriad of economic and political factors, creating downward pressure and drawing attention to the Ever-Watchful eye of investors on the US Dollar. Recent inflation data from the United States has further heightened this focus.

The Consumer Price Index (CPI), measuring the average change in prices of goods and services commonly purchased, saw a 0.3% increase in December compared to the previous month. This aligns with market expectations, according to data from the Bureau of Labor Statistics. Additionally, the pessimistic stance of the European Central Bank, maintaining interest rates unchanged amid the ongoing Ukraine-Russia conflict and energy crisis in Europe, has significantly weakened the Euro against the Dollar.

Looking ahead, optimism persists from the Federal Reserve's inclination towards future interest rate cuts, positively impacting the Eurozone. Future Gross Domestic Product (GDP) data from Germany and the European Union may further enhance the attractiveness of the Euro.

From a weekly technical analysis perspective, the Euro-Dollar pair has recently dipped below the 1.0840 level, with a potential continuation of the bearish trend, resulting in losses exceeding 1.35%. Dynamics of The Euro-Dollar Currency Pair in The Forex Market_1

Dynamics of The Euro-Dollar Currency Pair in The Forex Market_1

EURUSD Price Chart

Historically, the Forex market has seen significant shifts in the Euro to US Dollar exchange rates. In the 1990s, the German currency (Deutsche Mark) against the US Dollar was one of the major pairs. However, a transformative event occurred in 1999 with the introduction of the Euro, altering the landscape of Forex history. The Euro's launch marked a radical change, replacing previous European Currency Unit (ECU) iterations and introducing a genuine, stable European currency.

Despite the Euro's official listing in Forex in 2002, its introduction in 1999 tied the values of European currencies closely to the Euro. The Euro's initial exchange rate with the US Dollar was set at 1.1686. This event reshaped the dynamics of the Forex market, solidifying the Euro as a strong competitor to the US Dollar as a global reserve currency.

The Euro's early days in Forex showcased its potential as a formidable reserve currency, challenging the supremacy of the US Dollar. While competition continues, the US Dollar maintains its status as the primary currency in the Forex world and global reserves.

To stay updated on all economic events of today, please check out our Economic calendar

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FxPro Group

Commodity

Gold rose to $2,040 per troy ounce on Tuesday morning, a two-week high. The positive momentum is being driven by risk appetite on global platforms. One of the reasons for the increase in demand for the metal could be the strength of the Chinese stock market.

The three main US indices, the S&P500, the Dow Jones Industrial Average and the Nasdaq100, closed at all-time highs on Monday, continuing a run of almost two weeks of gains after a minor correction at the start of the year. The rally was fuelled by reports that the US Treasury had reduced its bond borrowing plans for the coming months. This means that more money that would have been used to buy bonds can be used to buy stocks and commodities.

We are also paying attention to signals from a WSJ journalist who covers Fed policy. He is widely acknowledged to be effective at conveying and interpreting signals that the FOMC can no longer give in the 'week of silence' before the meeting. In a recent article, he noted that the 'sharp drop' in inflation poses a new risk for the Fed. It's a sharp reversal from the inflation threat of the past two years. It is a return to the narrative that prevailed after the 2008 crisis when the world's major central banks worked to raise inflation rather than contain it.

This return of an old theme is reminiscent of gold's rally from $720 to $1,900 an ounce in 2008-2011 when there was a shift to a zero interest rate policy and the start of QEs. Gold Is Gaining on the Stock Market Narrative_1

Gold Is Gaining on the Stock Market Narrative_1

At the same time, the Chinese market continues to lose investor confidence as a result of the Evergrande bankruptcy and the unimpressive measures taken by regulators to support the markets and the economy. Hong Kong and mainland Chinese stock indices have halted the recovery that began last week and are losing ground for the second trading session, trading near multi-year lows. In this environment, and particularly in China, gold is once again enjoying the status of a defensive asset.

On the other hand, gold has been in a downtrend since the beginning of the year, although it usually starts the year strong. In years where we see early weakness in the first few weeks, the pressure soon builds. And we expect this trend to manifest itself as early as this week.

The price of the troy ounce could correct as low as $1,960, approaching the 200-day moving average, where the battle for the trend will likely intensify. If the bullish scenario comes to fruition, a move above $2,050 by the end of this week will significantly increase the chances of gold testing its all-time highs in the coming weeks.

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Economic

Commodity

Sharp drop in Baltic Dry Index points to slowing commodity demand

The Baltic Dry Index, the shipping and trade index produced by the London-based Baltic Exchange, provides a clear picture of the price of moving raw materials by sea and offers valuable insights into global supply and demand.

In recent months, the Baltic dry Index has been significantly impacted by a confluence of factors, including a severe drought disrupting major shipping routes and escalating regional conflicts affecting maritime trade.

A prime example is the Panama Canal, an essential conduit for global shipping, which in November faced drought conditions, forcing the canal to impose temporary restrictions on ship crossings. This bottleneck stymied trade flows and rippled through supply chains worldwide with the index surging by around 140% to its 3,346 early-December peak, an 18-month high.

In Yemen, the Iran-backed Houthi rebel forces have been battling a Saudi-led coalition for years. As the Houthis targeted commercial ships in the Red Sea, the US and Britain retaliated with airstrikes. This regional turmoil has disrupted vital oil shipments and rocked commodities markets.

Meanwhile, the flare-up in violence between Israel and Hamas forces in Gaza has also unsettled the shipping industry. With missiles being fired and airstrikes being launched, underwriters raised war risk insurance premiums for vessels passing through the Red Sea. Consequently, some shipowners avoided the region, causing shipment delays and rate spikes on certain routes.

Interestingly the December high in the Baltic Dry Index was made marginally below the December 2021 and May 2022 peaks at 3,369 to 3,423 before a sharp sell-off took it back to the 200-day simple moving average (SMA) at 1,520, more than halving the index's value within six weeks as freight rates across vessel categories plunged to multi-month lows. Sharp Drop in Baltic Dry Index Highlights Slowing Commodity Demand_1

Sharp Drop in Baltic Dry Index Highlights Slowing Commodity Demand_1

Lack of growth in China and Europe – with two of its main players, Germany and France skirting a recession - coupled with overcapacity in containerships has provoked the recent swift bearish reversal.

The Euro area has seen zero quarter-on-quarter growth in the fourth quarter (Q4) of 2023 and year-on-year only grew by 0.1% whereas China is plagued by its property sector bust and lacklustre demand.

The Baltic Dry Index is now being capped by the 200-day SMA which acts as resistance at 1,520 with it slipping towards its February-to-January support line at 1,350, marginally below which lies the mid-January low at 1,308.

Below it sits significant support between the June and September 2023 lows at 1,063 to 919. Above or within this support area the Baltic Dry Index would then be expected to level out, unless the global economy were to slip into a recession in which case the February 2023 trough at 530 would be back in sight.

Good resistance above the 200-day SMA at 1,520 can be spotted between the March to May 2023 highs at 1,603 to 1,640.

While the next higher October 2023 peak at 2,105 isn't exceeded, the medium-term trend will remain bearish.

To stay updated on all economic events of today, please check out our Economic calendar

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Ukadike Micheal

Economic

UK mortgage approvals surged to a six-month high in December, coinciding with the first decline in average rates since November 2021, signaling a potential stabilization in the property market. Net mortgage approvals for house purchases increased from 49,300 in November to 50,500 in December, reaching the highest figure since June. However, this fell short of the economists' forecast of 52,500, as revealed in a Reuters poll.

In addition to the positive momentum in house purchase approvals, net approvals for remortgaging also saw an uptick, rising from 25,700 in November to 30,800 in December. The Bank of England reported a noteworthy development in the 'effective' interest rate on newly drawn mortgages, which fell by 6 basis points to 5.28% in December. This marked the first decline in interest rates since November 2021, providing a potential boost to the affordability of mortgages and contributing to the overall positive sentiment in the real estate market.

The increase in mortgage approvals and the dip in interest rates reflect a dynamic shift in the housing market, potentially encouraging both homebuyers and individuals seeking to remortgage. As the property market responds to changing economic conditions, these trends may influence consumer confidence and contribute to the ongoing recovery and stability in the UK real estate sector.

Despite the encouraging signs, the December figures for mortgage approvals fell short of economists' expectations, emphasizing the potential challenges and uncertainties that persist in the market. While the six-month high in approvals is a positive indicator, the modest deviation from the forecast suggests that the real estate landscape remains influenced by various factors, including economic conditions, policy changes, and market dynamics.

As the Bank of England continues to monitor and respond to economic developments, the mortgage market's performance will likely be closely watched. The central bank's role in shaping monetary policy and influencing interest rates can have a significant impact on the affordability of mortgages, influencing consumer behavior and overall market activity.

The rise in remortgaging approvals indicates that existing homeowners may be exploring opportunities to optimize their mortgage arrangements, taking advantage of favorable interest rate conditions. This trend aligns with the broader economic landscape, where individuals and businesses alike seek to adapt to changing financial conditions and make strategic decisions to enhance their financial positions.

Looking ahead, the real estate market's trajectory will be influenced by a range of factors, including inflationary pressures, economic growth prospects, and potential shifts in monetary policy. The delicate balance between supply and demand, coupled with evolving consumer preferences and external economic influences, will shape the resilience and sustainability of the property market's recovery.

The recent uptick in UK mortgage approvals, coupled with the decline in average interest rates, provides a positive signal for the property market's potential stabilization. While challenges and uncertainties persist, these developments contribute to an optimistic outlook for the real estate sector. As stakeholders navigate the evolving landscape, the interaction of economic variables and policy decisions will play a crucial role in determining the market's resilience and future trajectory.

Source: Financial Times

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The Impact of JOLTs Job Openings on The US Economy A Deep Dive into Fiscal and Monetary Policy