U.S. JOLTS job openings expected to post another new record high
U.S. trade deficit expected to narrow from previous month's record high
3-year T-note auction to yield near 0.31%U.S. JOLTS job openings expected to post another new record high — The consensus is for today’s April JOLTS U.S. job openings report to show a +77,000 increase to a new record high of 8.200 million. The series in March surged by +597,000 to the current record high of 8.123 million.
The markets are carefully watching the labor market since the Fed will start raising interest rates when its labor goals have been met. The Fed’s inflation goals have already essentially been met due to the current inflation surge. The markets are not expecting the Fed to start raising interest rates until early 2023, but that could happen much sooner if hiring surges and the unemployment rate falls back towards pre-pandemic levels.
The fact that job openings are at a record high is a good start towards a labor market recovery. However, the U.S. economy needs to produce another 7.6 million payroll jobs to get back to the record high seen before the pandemic. Last Friday’s payroll report of +559,000 was weaker than expectations of +653,000, which illustrated that it will still take many more months to get another 7.6 million people into a new job.
The May unemployment rate last Friday fell by -0.3 points to a 14-month low of 5.8%, which showed a stronger labor market than expectations for a -0.1 point decline to 6.0%. However, the current unemployment rate of 5.8% is still well above the record low of 3.5% seen before the pandemic.
U.S. trade deficit expected to narrow from previous month’s record high — The consensus is for today’s April U.S. trade deficit to narrow to -$68.7 billion from March’s record high of -$74.4 billion (data since 1992).
The U.S. trade deficit has soared since the pandemic began because exports have been much weaker than imports. The U.S. economy has recovered much faster than the rest of the world because of the Fed’s extremely easy monetary policy and the massive amount of fiscal spending stimulus that the U.S. government has pumped into the U.S. economy. The result of the strong U.S. economy is that imports have been much stronger than exports, which have been hurt by the relative weakness of most of the rest of the global economy.
U.S. exports in March finally turned positive on a year-on-year basis for the first since December 2019, rising by +8.1% y/y. However, that was still much weaker than the +18.1% y/y rise in March imports.
Meanwhile, the U.S. trade deficit with China remains extremely wide. The markets have been watching the tentative beginnings of the Biden administration’s engagement with China. However, President Biden plans to maintain a hawkish stance against China. There seems to be little chance of any trade thaw over the near-term that could result in the roll-back of some of the still-existing Trump-era tariffs on Chinese products and China’s retaliatory tariffs on U.S. products.
The Trump administration reached a “phase-one” trade deal with China that took effect in February 2020. However, the two sides engaged in only a partial roll-back of tariffs. The U.S. left in place a penalty tariff of 25% on $250 billion of Chinese goods and a 7.5% tariff on $120 billion of China goods. Meanwhile, China still has penalty tariffs in place on nearly all products that it imports from the U.S.
The Biden administration has said that it expects China to live up to its agreement in the phase-one trade deal to buy about $200 billion of extra U.S. products in 2020 and 2021. China is far behind on its purchases, due in part to the pandemic. However, the Biden administration is keeping the pressure on China to continue to make those purchases.
3-year T-note auction to yield near 0.31% — The Treasury today will sell $58 billion of 3-year T-notes. The 3-year auction size of $58 billion has been unchanged for the last five months (Jan-May), having jumped by 53% to that level from the $38 billion level seen in 2019 and early 2020 before the pandemic caused government expenses and debt to explode.
The Treasury will then continue this week’s $120 billion coupon package by selling $38 billion of reopened 10-year T-notes on Wednesday and $24 billion of reopened 30-year T-bonds on Thursday.
The benchmark 3-year T-note yield yesterday closed at 0.31%, which is in the lower half of the narrow range of 0.26%/0.38% seen since March. The 3-year T-note yield continues to move sideways since the markets are not expecting the Fed to implement its first rate hike until early 2023.
The 12-auction averages for the 3-year are as follows: 2.43 bid cover ratio, $31 million in non-competitive bids, 2.9 bp tail to the median yield, 16.4 bp tail to the low yield, and 62% taken at the high yield. The 3-year is the least popular security among foreign investors and central banks. Indirect bidders, a proxy for foreign buyers, have taken an average of only 51.1% of the last twelve 3-year T-note auctions, which is well below the median of 60.5% for all recent Treasury coupon auctions.