Jolts, Jobs & Carney

<p>The number of US job vacancies waiting to be filled slipped to 4.67m in July from 4.68m a month earlier, but held up near 13-year […]</p>

The number of US job vacancies waiting to be filled slipped to 4.67m in July from 4.68m a month earlier, but held up near 13-year highs. The job opening and labor turnover survey (JOLTS) measures job openings, including newly created or unoccupied positions. The survey is becoming an increasingly valuable metric on US labour markets among Fed watchers, especially as Fed chair Yellen has taken an increasingly broad view in assessing US employment trends. Meanwhile, the US dollar moves from strength to strength as yields rise in tandem with stocks.

Yellen’s jobs dashboard

Today’s report is among nine measures on Yellen’s labor market dashboard, used to signal monetary policy assessment and expectations. Non-farm payrolls, job openings rate and the pace of layoffs-have all returned to pre-recession levels, but figures such as the labour participation rate, long-term unemployment and the underemployment rate (part-time workers seeking full time work and those in the labour force who are looking and ready to work) remain far from the 2004-2007 average.

In her Jackson Hole speech on the job market, Yellen said recent gains in vacancies may suggest robust job growth but remained concerned with the “failure of hiring to rise with vacancies,” which she deemed to be reflective of firms’ general preoccupation with the economic outlook.

Last week’s non-farm payrolls’ release for August disappointed with 142,000, well below consensus expectations of 230,000. But with the unemployment slipping back to 6.1% and hourly earnings continuing to rise, the markets see the Fed on course to taper its asset purchases at this month’s FOMC meeting before ending QE3 next month. Equities and even bond yields are riding high. US 10-year yields are at the 2.50% for the first time in four weeks.

US dollar and yields back up together

In fact, with bond yields rising 6% since their August low and the US dollar gaining 2% over the same period, this is the first two-week period since autumn 2013, in which both the US dollar index and 10-year yield have risen in tandem. Technically US 10-year yields are on the cusp of a golden cross formation, whereby the 100-week moving average is looking to break above the 200-week moving average, a pattern not seen since June 2008.

Carney signals spring 2015 hike, GBP unimpressed

Bank of England Governor Mark Carney told trade unions in a speech today that interest rates will begin to “increase by the spring and thereafter”, considering rates follow the path expected by the markets. The assessment strikes a balance between those who were still anticipating a Q4 2014 rate hike and those seeing a tightening after Q2 2015, following negative earnings growth figures.

Carney’s “spring” comments prompted a sharp rally in GBP pairs before traders quickly returned to defensive “referendum mode”, selling the currency across the board. In the likely event that Scotland did vote for independence, the Bank of England will likely delay any tightening to after the May 2015 elections due to possible interventionist actions to assist the likes of RBS in managing the breakup and uncertainty with regards to Scotland’s debt share in the UK.

Carney returns on Wednesday when he appears alongside PM Cameron before the House of Commons, where he will surely reiterate the importance of sovereignty and currency unions. As hawkish as Carney could get, FX traders will not be swayed by his expectations over the 6-9 month horizon, when a greater source of reverberation could be due nine days away.  GBPUSD will likely retest the 200-week moving average at $1.600 ahead of the referendum, before 1.5930s is considered.


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