Market 11/01: Market optimistic ahead of debt issuance plan replacing FOMC as focal point

FOMC keeps interest rates, agrees QT having positive impact on inflation

Inflation gradually cooling but "the road is still long"
- Wage inflation shows positive signs of cooling
Labor market supply-demand imbalance has improved but needs further improvement
Current tightening interest rate policy having expected impact on interest-sensitive sectors but more data needed for next step
Recent somewhat positive economic data could lead to tighter policy.
Long-term 2% inflation target unchanged.
Economic recession continues not in forecast

US government announces lower-than-expected debt issuance plan

It can be said this is today's market focus with most of Wall Street reacting positively after the Treasury announced specific plans for debt issuance over the next 6 months. Specifically:

Total $776B for Q3, $76B less than initial forecast - announced on Monday
$816B for Q1 2024

$112B for next week, less than Wall Street's $114B estimate
Reducing intensity of 10-year and 30-year bond sales to ease market pressure - the most optimistic point

Debt issuance trend continues maintaining unhealthy upward momentum

Atlanta FED cuts Q4 GDP growth forecast from 2.3% to 1.2%

This comes after much of Q3 GDP growth from summer consumer spending and government spending from borrowing.

Read more about Q3 GDP report

ADP Employment Report: Wage growth continues to decline

According to ADP report, companies added 113,000 workers in October, higher than 89,000 in September but lower than 130,000 estimate.

This figure lower than BLS expectations on Friday, with about +180,000 new jobs.

Services sector continues to dominate job creation vs. goods or manufacturing sectors.

Last month, Professional Services job data showed stark difference between JOLTS and ADP reports (-32,000 and +509,000). In October, jobs in this sector fell more than 10,000.

Wage growth rate declined for 13 straight months. Stable workers saw 5.9% YoY wage increase. Wages also declined for job changers, to 9% from 9.7% in August.

Job openings suddenly surge beyond expectations

In September, job openings rose +56,000, from 9.497 million in August to 9.553 million...

While expectations were only 9.4 million.

According to BLS report, job openings rose significantly in leisure and hospitality (+141,000), but deep declines in federal government (-43,000) and information sector (-41,000).

Professional Services sector appears to be adjusting back to normal levels.

Two straight increases in job openings made vacancies 3.193 million higher than unemployed, highest since June.

Despite job openings increase, simultaneous unemployed rise kept vacancies per unemployed nearly unchanged at 1.5 for 3 straight months.

In September, quits fell to 3.661 million, significantly lower than peak in late 2021 and early 2022 when up to 4.5 million quit monthly.

In fact, hires rose slightly 21k to 5.5871 million, just slightly above March 2021 low.

Oil prices continue rising despite insignificant reserve changes

According to DOE report, crude inventories only slight increase last week:

Crude +773,000 barrels (vs. expected +500,000).
Cushing +272,000 barrels.
Gas +65,000 barrels (vs. expected -500,000).
Refined products -792,000 barrels.

SPR oil reserves unchanged for 4 straight weeks.

While Cushing oil inventories remain at bottom.

Crude production remains at record high (13.2 million bpd), while rig count declines.

WTI oil price currently hovering around $83/barrel.

Meanwhile, Russian oil exports continue rising despite supply cut threats.

Last week, Russia exported about 3.64 million bpd crude, up 110,000 barrels from prior week.

Record high crude production

New EIA data shows crude oil production at oilfields reached 404.6 million barrels in August, averaging 13.05 million bpd, surpassing prior record set by US drillers in July of 401.73 million barrels.

According to Goldman Sachs, the US has contributed to the growth of global oil supply. In the past year, the Permian oil region has significantly increased crude oil supply since early 2020.

US supply is also increasing faster and is expected to exceed IEA expectations for the 13th consecutive year.

Not to mention the US remains an important marginal oil producer country, where private companies produce oil flexibly but at higher costs compared to the global scale.

There are concerns that the US is falling into the overproduction trap, however in reality, crude oil production growth in Permian has slowed as the number of rigs decreases but productivity remains stable.

S&P Global Manufacturing PMI warns of rising inflation

S&P Global Manufacturing PMI for October reached 50 points, however ISM Manufacturing index was significantly lower than expected (46.7 vs. expected 49.0).