Market 10/03: Bond yields continue to hit new highs after jobs report

Fed official: interest rates will still be “higher and longer”

September FOMC shows 12/19 policymakers expect one more rate hike this year and fewer rate cuts in 2024 than previously forecasted.

Some recent statements from Fed officials this morning and yesterday afternoon:

Governor Michelle Bowman: “May need to raise interest rates higher and keep them there for a while. Inflation is still too high.”
Cleveland Fed President Loretta Mester: “will need to raise interest rates one more time this year, then keep rates higher for a while to bring inflation back to the 2% target.”

S&P 500 index has fallen nearly 9% since the FED officially removed the economic recession scenario from its forecast in the July meeting while 10-year bond yields have risen nearly 1.00%

Does withdrawing the FED's “no economic recession” warning officially mark the start of a recession?

Video of Steve Le's recession forecast 2 months ago:

JOLTS job openings surge the most in 2 years

August job openings data exploded to 9.61 million, up 690,000 from last month - the largest monthly increase since July 2021.

Actual figure far exceeded the expected 8.815 million - the largest difference since 09/2022.

Quit rate unchanged from August at 2.3%, hovering around peaks from 2019, 2005 and early 2000s.

Markets in red, bond yields continue to rise after jobs data

Dow Jones and S&P both plunge after explosive jobs data. JOLTS data stronger than expected shows labor market still too hot, making it likely Fed will continue raising rates.

Market now expects over 29% chance Fed will raise rates by another 25 basis points at the next meeting, up from 16% last week.

10Y bond yield continues to hit new highs, trading around 4.74% - highest in 16 years.

3-month bond yield rises to 5.62%, highest since Dotcom Bubble
2Y bond yield at 5.13%
30Y bond yield rises to 4.87% - highest since 2007.

Yield curve has been inverted for 225 consecutive days, the longest period in history. This is a negative signal as yield curve inversions almost always end in a recession.

Businesses struggling as credit tightens

Number of banks tightening lending standards has reached the highest level in 35 years and often precedes a recession.

Credit card delinquency rate at small banks reaches 7.51%, highest in history

Bankruptcy rate for small businesses has surged due to soaring interest rates. Compared to 2020, this figure is up nearly 60%.

Corresponding to rising bond yields, borrowing costs for S&P 500 companies have risen to the highest level in nearly two decades, causing businesses to limit leverage and directly impacting ROE.

EUR hits 2023 low amid pressure from USD

US Dollar Index DXY continues to rise above 107 - highest in 2023.

EUR/USD exchange rate drops sharply to 1.0467 - lowest since last December, extending the decline from the 16-month high reached in July.
Recent weakening economic situation and declining inflation in the Eurozone raise rumors that ECB cannot raise rates any further.

USD/JPY exchange rate rises above 150 - important level last seen in October last year, then suddenly drops 300 pips and recovers around 149.

Other news:

Rep. Matt Gaetz calls for ousting House Speaker Kevin McCarthy
Australia's RBA holds rates steady at 4.10%
The trial of former FTX CEO Sam Bankman-Fried will begin today and last 21 days
Hedge funds have now built the largest short position in US Treasuries in history

McCormick shares fell about 9% - the sharpest drop in over 3 years as sales slid
Meta wants to charge European users 14 USD to access ad-free Instagram and Facebook
Netflix plans to raise prices for its ad-free service after the actors' strike ends