Market Overview

Cooling of labour demand in America has become evident from the recent incoming data in the United States. Ironically, softer than expected data became a real pain-killer for the market sentiment, as it revitalised some faded crowd's expectations for the Federal Reserve (Fed) to make an extended rest stop in its rate-hiking cycle this autumn and winter. The Magnificent Seven mega caps of Nasdaq (Apple, Microsoft, Amazon, NVidia, Google-parent Alphabet, Meta Platforms and Tesla) got ahead of the market peloton, as many investors seized up an opportunity to pick up the leaders' stocks with a moderate discount.

Wall Street managed to give its best one-day performance since June on august 29, when the Job Openings and Labor Turnover Survey, or JOLTS, surprisingly showed that American employers posted only 8.827 million vacancies last month. Previous data was at 9.582 million one month ago, and it was also revised down to 9.165 million. A big change for both June and July, especially since expert polls expected that the number of available positions would drop to 9.47 million by the end of this two-month period.

Therefore, new job opportunities came to the lowest level in more than two years. Yet, it did not seem enough, so that the monthly employment change from ADP (Automatic Data Processing) showed a decline from 371,000 to 177,000 the following day. So, a bulk of bad-news-is-good-news-trade practitioners came running once again to help stock indices to go up. Market optimists believe this kind of data may stop the Fed from doing too much, as the regulator could be afraid to cause unnecessary harm to the economy.

What's interesting in this context is just one sentence in the speech of the Fed's chair Jerome Powell last Friday when he mentioned that beyond "traditional sources of policy uncertainty, the supply and demand dislocations unique to this cycle raise further complications through their effects on inflation and labour market dynamics", giving the only example that "so far, job openings have declined substantially without increasing unemployment—a highly welcome but historically unusual result that appears to reflect large excess demand for labour". As inflation "has become more responsive" to labour market tightness than was the case in recent decades, he added, this "underscores the need for agile policymaking". Does this mean that the Fed may ignore the data on vacancies in general, looking only at unemployment and the trend on wages? It looks like a legitimate doubt or a good argument for sceptics.

FedWatch tool priced in a 88.5% probability of the Fed's rate pause on its nearest September 20 meeting, and nobody questions its outcome seriously. So, the main intrigue could emerge on November 1, as 55.7% of traders are betting on keeping the rates unchanged that day, while others are expecting another rate hike. A similar fifty-fifty cut of cards is seen for the Fed's meeting in December, even though a lot of water would get lost before the end of 2023 in terms of upcoming inflation and jobs data.

After a pessimistic drive to test the area between 4,350 and 4,400 last week, the S&P 500 broad barometer of Wall Street quickly bounced to reach its highs of the first decade of August. More volatility may follow when the large investing funds, which are market makers, would process and absorb other statistical issues like the Fed's favourite PCE (personal consumption expenditure) indicator of core inflation and upcoming average hourly earnings and non-farm payrolls by the U.S. Bureau of Labour Statistics.

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