Marketmind: Job runes, China offer sliver of rate hope

A look at the day ahead in U.S. and global markets from Mike Dolan

Even as markets rush to price a resumption of half point U.S. interest rate rises later this month, the door to a smaller hike may have been left ever so slightly ajar.

In the second of this week’s congressional testimonies on Wednesday, Federal Reserve Chair Jerome Powell caveated his hawkish message of a still-rising rate horizon by emphasizing the decision still hinged on February jobs and inflation readouts before the Fed meets in two weeks time.

“I stress that no decision has been made on this – but if the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes,” Powell said.

That certainly ups the ante for Friday’s monthly employment report and next week’s consumer price index releases. Another bumper payrolls report and sticky inflation number would bake in a 50 basis point hike to 5.0-5.25% on March 22 – and futures markets are more than 80% priced for that outcome already.

A slightly dated reading of U.S. job openings for January showed vacancies are falling, but by less than forecast and still showing a tight labor market that has 1.9 vacancies for every unemployed worker. But the rate at which people were leaving jobs voluntarily was falling and layoffs were up.

Private sector job creation remained robust last month, however, according to ADP numbers.

Today’s weekly jobless numbers will give another snapshot.

Another pause for thought came from China’s February inflation numbers that show annual consumer price rises slowed to just 1%, the lowest rate in a year.

Combined with persistence of producer deflation, the data questioned some narratives about the impact on global inflation of China’s re-opening from COVID lockdowns but also showed price pressures were no obstacle to more government stimulus there.

More broadly on Thursday, interest rates markets retained their dramatic re-pricing and relatively resilient stock markets tilted negative again. The dollar backed off recent highs.

The state of play on the Fed radar is that the implied peak rate is now as high 5.65% for the July-September period, with perhaps the most eye-catching rethink on where markets now see year-end Fed rates. The implied end-2023 rate is now above 5.50% – more than a full percentage point above where it was assumed on February 1.

Two-year Treasury yields held above 5% and 10-year yields above 4%.

European and U.S. stock futures were in the red on Thursday.

U.S. President Joe Biden will travel to the swing-state of Pennsylvania on Thursday to unveil a federal budget plan laden with spending proposals and higher taxes on the wealthy that will form a blueprint for his expected 2024 re-election bid.

U.S. House Republicans and Democrats showed no sign of surrendering partisan positions after a briefing on the nation’s $31 trillion debt on Wednesday. Biden said his proposal will cut the nation’s deficit by nearly $3 trillion over 10 years, though it relies on tax increases to do so while Republicans are pushing for sharp cuts to domestic spending.

Elsewhere, South Africa’s rand fell to its lowest in almost 3 years overnight after S&P Global late Wednesday downgraded its outlook on South Africa to “stable” from “positive”, citing infrastructure constraints and a severe power crisis.

In banking, Credit Suisse shed 6% after the embattled lender delayed publishing its annual report due to the U.S. market regulator raising questions about earlier financial statements.

JPMorgan has sued Jes Staley, its former private banking head and later Barclays Plc’s chief executive, accusing him of entangling it with sex offender Jeffrey Epstein, and saying Staley himself had been accused of sexual assault.

Shares in failed crypto lender Silvergate Capital dropped 45% in pre-market trading after it said it planned to wind down operations and voluntarily liquidate after it was hit with losses following the dramatic collapse of crypto exchange FTX.

Key developments that may provide direction to U.S. markets later on Thursday:

* U.S. weekly jobless claims, Feb Challenger layoffs data

* Federal Reserve releases quarterly financial accounts of the United States; Fed Vice Chair for Supervision Michael Barr speaks on crypto assets

* French President Emmanuel Macron and Britain’s Prime Minister Rishi Sunak hold bilateral summit in Paris

* U.S. Treasury auctions 30-year bonds

* U.S. corporate earnings: Oracle, Ulta Beauty

(By Mike Dolan, editing by Elaine Hardcastle mike.dolan@thomsonreuters.com. Twitter: @reutersMikeD)