Bonds Rally as Equities Keep a Watchful Eye

Bonds rally, equities watch

By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank  

The central bank doves are forcefully back following a significantly lower-than-expected US JOLTS print, and on the back of a surprisingly dovish comment from an otherwise... hawkish Isabel Schnabel from the European Central Bank (ECB).  

Jolts

Released yesterday, the JOLTS data showed that the US job openings fell below 8.8 mio jobs in October – when strikes in Detroit's three big carmakers may partly explain why the job openings saw such a meaningful decline. But whatever it is, the US offered a lot less jobs in October than it did the previous month, and that has come to cement the idea that the US jobs market is further loosening. Again, the October numbers should be taken with a pinch of salt as they were certainly impacted by the strikes, and November numbers could also be influenced by the distortions of October – meaning that we could see some robust numbers after a depressed month of October. Yet overall, the US jobs market had started giving signs of cooling before the strikes, and this week's numbers may not be representative of the underlying trend. However, the US jobs figures gain a crucial importance as the Federal Reserve (Fed) approaches a policy pivot.  

Due today, the ADP is expected to print 130K private job additions in the US last month, and the Atlanta Fed's GDP forecast is expected to hint at a sharp decline in Q4 growth to 1.2% from above 5% printed last quarter. If that's the case, the Fed doves will remain in charge of the market, but the everything rally will likely turn into a... bond rally as we are now at a juncture where the bond optimism might only persist with increased recession probabilities, which doesn't bode well for equity appetite.