- T-note yield falls sharply to 4-1/2 month low despite expectations for hawkish FOMC minutes today
- U.S. stocks take a hit from Chinese regulatory crackdown on U.S.-listed Chinese tech stocks
- U.S. job openings expected to rise to another new record highÂ
T-note yield falls sharply to 4-1/2 month low despite expectations for hawkish FOMC minutes today — The 10-year T-note yield on Tuesday fell sharply by -7.6 bp to a 4-1/2 month low of 1.35%, the lowest level since February.
The T-note yield fell on the weaker-than-expected June U.S. ISM services index, which fell by -3.9 points to 60.1. The T-note yield also fell on the decline in the 10-year breakeven inflation expectations rate by -1.3 bp to 2.33%, which was prompted by Tuesday’s -2.38% plunge in August WTI crude oil prices. The T-note yield was also pushed lower by the lack of any new Treasury coupon auctions this week.
The 10-year T-note yield was already on a downward slide from last Friday when the June U.S. unemployment report was greeted dovishly by the markets due to the +0.1 point increase in the June unemployment rate to 5.9%. The June payrolls report of +850,000 was stronger than expectations of +711,000, but it wasn’t a blow-out figure.
The T-note market seemed to conclude that the June unemployment report wasn’t strong enough for the Fed to conclude that it has seen the “substantial further progress” that it requires before deciding to begin QE tapering.
The U.S. labor market still has a long way to go before getting close to its pre-pandemic level. The current unemployment rate of 5.9% is still well above the record low of 3.5% seen in the months before the pandemic struck in early 2020. In addition, the U.S. economy has recovered only two-thirds of the jobs lost during the pandemic. The economy needs to produce another 6.8 million jobs to get back to the pre-pandemic level.
Despite the dovish tone seen in the past few days, today’s release of the June 15-16 FOMC meeting minutes could be construed by the markets as hawkish. FOMC members at that meeting began discussions of QE tapering. Also, the Fed’s new dot-plot from that meeting showed that most FOMC members turned significantly more hawkish about rate hikes. Seven of the 18 FOMC members are now expecting at least one +25 bp rate hike in 2022, and 11 of the 18 members are expecting at least a total of two rate hikes by the end of 2023.
The T-note market has still not displayed much concern about a QE tapering decision. The market consensus is that the early warning of QE tapering will not come until the August Jackson Hole conference or the following FOMC meeting on September 21-22.
In a survey taken by Bloomberg in early June, 33% of the respondents said they expect the formal announcement of QE tapering in September, 10% in October or November, and 33% in December.
The markets are expecting the Fed’s first +25 bp rate hike in late 2022, according to the federal funds futures market. The markets are then expecting two more +25 bp rate hikes in 2023.
U.S. stocks take a hit from Chinese regulatory crackdown on U.S.-listed Chinese tech stocks — U.S. stocks on Tuesday were undercut by a Chinese crackdown on U.S.-listed Chinese tech stocks. Didi Global (DIDI) on Tuesday closed -19.6% at $12.49, adding to last Friday’s loss of -5.3%. The Chinese government said last Friday it is beginning a cybersecurity review of the Chinese ride-hailing company that just went public last Tuesday at $14. The Chinese government ordered Didi to remove its software from app stores and stop signing up new customers.
The Chinese government, over the weekend, announced investigations of other Chinese tech companies listed on U.S. exchanges, including Full Truck Alliance (YMM) and Kanzhun (BZ). The Chinese government’s action was seen as an effort to exert control over user data and as a warning to Chinese tech companies to keep their listings on the Chinese mainland. The Invesco Golden Dragon China ETF (PGJ), which tracks U.S.-listed Chinese ADR stocks, fell -3.02% on Tuesday, adding to the sharp -2.87% combined sell-off seen last Thursday and Friday.
U.S. job openings expected to rise to another new record high — The consensus is for today’s May JOLTS job openings report to show a +39,000 increase to 9.325 million, which would take out April’s record high. Job openings in April surged by an extraordinary +998,000 to a record high of 9.286 million (data since 2000).
Job openings so far this year have surged by 28% to the record high of 9.286 million and are 2.6 million higher than the pre-pandemic level of 6.75 million seen at the end of 2019.
Businesses are advertising to hire new employees as the pandemic fades and business restrictions drop away. Hiring is strong in the revived restaurant, entertainment, and travel sectors. However, hiring is also strong in the manufacturing sector and many other sectors of the economy because of the strength of the economy.
The consensus is for U.S. GDP growth to surge by +10.0% (q/q annualized) in Q2, and remain strong through the end of the year. The consensus is for 2021 GDP growth of 6.6%, which would more than overcome the -3.5% decline seen in 2020 and would be the strongest U.S. GDP annual growth rate since 1984.
