Wall Street mixed on mixed earnings and US job opening data

·         Although job openings slumped surprisingly, it may be the disruptive effect of Cyclone Helena

·         JOLTS NFP job hiring data indicate Oct’24 NFP job addition may be around 200K against present market expectations of +111K (due to Cyclone Helena disruption in 2nd half of the Sep’ 24 survey period)

·         As US core disinflation almost stalled in Q3CY24, while the employment situation remains stable and economic activities are solid, the Fed may pause in Nov’24 and cut 25 bps in Dec’24

·         But the Fed may also cut 25 bps in Nov’24 to stay ahead of the soft landing curve if Oct’24 US job GDP data comes softer

Wall Street Futures got some boost Monday after Israel’s staged retaliation on Iran. Looking ahead, Israel’s much-awaited staged retaliation (war drama) against Iran to meet domestic political compulsion may be positive for the risk trade (stocks) and negative for Gold & oil as an element of uncertainty has been removed. After the US election, we may see Gaza and Ukraine war ceasefire under Trump 2.0. Even under Harris 1.0, we may see a Gaza war ceasefire as Israel now thinks Hezbollah and Hamas are not in a state to launch any serious attack on Israel. Thus Israel may now focus on ceasefire and hostage deal with Hamas.

Risk trade may be boosted as the ‘war game’ between Israel and Iran ended without causing any serious damage on both sides, which is positive for Gaza war ceasefire going forward AS Israel now believes that war/terror infra of all Iran proxies (Hamas, Hezbollah, and Houthi) may be almost destroyed and these ‘terror organizations’ are now not in a state to launch any serious/large scale attack on Israel. But Iran is still threatening Israel to retaliate by launching ‘unimaginable crushing strikes’ in the coming days that will ‘surprise, everyone, while Israel is also responding by attacking again this time with more important military assets. As per Israel, Iran may not have now sufficient air defense capabilities after Israel’s last attack.

Although Israel is continuing its military operation in Gaza and Lebanon, Israel’s PM Netanyahu’s office said discussions will continue between mediators and Hamas to further efforts to promote a ceasefire/hostage deal. On the other hand, US President Biden said Israel’s war in Gaza ‘should end, adding that he was renewing efforts for a ceasefire after Egypt proposed one that would last two days. For the Biden admin, it may be positive for the 5th Nov’24 election if some type of Gaza war ceasefire has been sealed just before the election date.

Biden said Monday after casting his early vote in the US presidential election: “We need a ceasefire. We should end this war. It should end, it should end, it should end--- I am getting out of here, get on a secure line, and follow up on that”.

On Tuesday, as per the latest TOI report, there will be another round of hostage talks this week, this time in Egypt. The Israeli delegation will likely be led by Mossad chief, while a US special envoy will be in Israel next week to continue pushing for a negotiated end to fighting in Lebanon. Israel is looking for long-lasting diplomatic assurances to end the fighting against Hezbollah.

Over the past year since the Gaza war started, as per some estimates, the US has spent around $23B in support of Israel’s war on Gaza and operations against the Houthis in Yemen, including $18B in military direct aid to the Israeli military. As of late 2024, U.S. aid to Ukraine for its defense against Russia has totaled around $113B since the war began in February 2022. This figure includes military, economic, and humanitarian aid. A similar amount was spent also during the 2014 Russia-Ukraine War 1.0.

·         Military Assistance: Approximately $67B, the largest category, supports weaponry, ammunition, intelligence sharing, training, and other defense capabilities

·         Economic Assistance: Roughly $30B to keep Ukraine's government functioning and to support essential services like healthcare and education

·         Humanitarian Aid: Around $16 billion for food, medical supplies, refugee assistance, and other relief programs.

Although direct military assistance by the US to Israel and Ukraine is boosting the U.S. defense industry and also political funding at the cost of increasing fiscal deficit and debt, the continuation and scope of this support are closely tied to the outcomes of the 2024 U.S. elections, with significant debate among policymakers and the public regarding the level of US involvement.

Trump is against such form of proxy war involvement at the cost of fiscal health, be it in Iraq, Afghanistan, Ukraine, or Israel, and thus the US defense industry, which controls US politics and policies against Trump, while other corporate lobbies supporting it due to his tax cut stance. But at the same time, Trump 2.0 means greater policy uncertainty including trade war 2.0. Thus the market is under stress on the concern of Trump tantrum 2.0 if Trump can win this time. As a possible trade war currency, USD is getting a boost, while stocks are under pressure for Trump 2.0. The US public debt may grow more than Harris; thus US bond slumped, while bond yields.

Although, Gold should get more thrust on higher US fiscal deficit, higher public debt, and higher devaluation of USD along with higher inflation possibility under Trump 2.0, at the same time there may be a higher probability of an imminent ceasefire of Gaza and Ukraine war under Trump 2.0 and thus Gold may slip along with Oil. Also, Trump is positive for higher production of oil, although he may be extremely hawkish on Iran, another major global producer/exporter of oil.

Now from geopolitics to economics, on Tuesday BLS/JOLTS (Job Openings and Labor Turnover Summary) flash data shows the number of job vacancies/openings in the U.S. decreased by -418K to 7443K in Sep’24 from 7861K sequentially; 9307K yearly, below market expectations of 7990K and the lowest level since Jan’21. The job openings/labor force rate was at 4.7% in Sep’24 against 4.7% sequentially. The US JOLTS/NFP job openings and unemployed persons (including NFP employees and self-employed) remained around 1.1 doe the last three months.

In Sep’24, US JOLTS/NFP job openings decreased in health care and social assistance, and government. The number of job openings decreased in health care and social assistance (-178K); state and local government, excluding education (-79K); and federal government (-28K) but increased in finance and insurance (+85K). Meanwhile, the number of hires and total separations changed little at 5.6 million and 5.2 million, respectively. Within separations, quits (3.1 million) and layoffs and discharges (1.8 million) changed little.

After the latest revisions in Sep’24, the YTM rolling average of JOLTS/NFP job openings to all unemployed persons (H/H survey) ratio was around 1.2 against the 2022-23 average of around 1.5; job openings/labor force rate was around 4.8% against 2023 average 5.6%.

In 2022, the U.S. economy was suffering from an acute shortage of labor force due to various structural as well as cyclical issues including unfavorable demography, shrinkage of the workforce after COVID, early retirements, legal immigration issues, and lack of properly skilled workers, outsourcing, and an increasing number of multiple job holders/gig workers/freelancers. In 2023, the US labor market was rebalanced to some extent as immigration increased/normalized after the lifting of all COVID-related restrictions. Overall, in 2024 YTM, one open job is available for around 21 workers (laborers), 18 workers in 2023, and 15 potential workers in 2022... Also, layoffs & discharge rates remain low around 1.0% of total NFP employment levels.

Overall latest JOLTS job data details may indicate higher NFP/BLS job additions; i.e. we may see higher NFP job additions data in Oct’24 or the coming months as 3M net additions of BLS NFP job additions under the JOTS survey in lower by around -174K than BLS Establishment survey, while the YTM difference is also -45K.

In the United States, JOLTS job openings refer to all positions that are open (not filled) on the last business day of the month. Job openings are part of the Job Openings and Labor Turnover Survey (JOLTS). The survey collects data from around 16400 nonfarm establishments including retailers and manufacturers, as well as Federal, State, and Local government entities in the 50 states and the District of Columbia. The JOLTS assesses the unmet demand for labor in the U.S. labor market and gained attention in 2014 as one of the Fed’s favorite labor market indicators after former Fed Chair Yellen stressed it.

BLS JOLTS NFP job addition data also verify/cross-check official BLS NFP Establishment survey data; i.e. NFP job addition every month, which falls under the Current Employment Statistics (CES) program from the BLS Establishment larger surveys about 141,000 businesses and government agencies, representing approximately 486,000 individual work sites, to provide detailed industry data on employment, hours, and earnings of workers on nonfarm payrolls. The BLS JOLTS NFP job data involves a much smaller sample size than the BLS Establishment survey and thus often diverges.

Conclusions:

The market is now estimating around +111K NFP (PVT+GOV) and +115K (PVT) job additions for Oct’24 amid the lingering disruptive effect of Cyclone Helene, the US election and certain other y\transient factors. But as per JOLTS data trend, the headline Oct’24 NFP job addition may be upbeat and BLS may surprise the market by printing it around 175-200K  and the headline unemployment rate at 4.0% (vs market expectations of 4.1%) ahead of US election final polling day 5th Nov’24.

As US core inflation almost stalled in Q3, while the unemployment rate remains stable at around 4.0%, the Fed may pause in Nov’24 amid stalled disinflation and a stable employment situation. Also, the Fed may cut -25 bps in Dec’24 rather than another jumbo -50 bps. The market is now expecting a -25 bps rate cut each in November and December as the Fed may have missed the opportunity of two rate cuts in H1CY24. Thus to make up Fed may also cut -25 bps in Nov’24 and another -25 bps in Dec’24 for a cumulative -100 bps in CY24.

Bottom line:

The projected Fed rate cut of -50 bps by Dec’24 not be assured as US core disinflation may have stalled in Q3CY24, while average unemployment remains around 4.0%; Fed should cut -25 bps in Dec’24 after a pause in Nov’24, but as Fed didn’t try to talk down against almost 96% implied market probability of a-25 bps rate cut in Nov’24, Fed may also cut in Nov’24 by -25 bps in order t stay ahead of the curve unless US Q3CY24 real GDP and Oct’24 NFP/BLS job data does not surprise on the upside materially. The US real GDP is set to grow by +3.0% against the Fed’s +2.0% average rate for CY24.

Market Impact:

On Tuesday, Wall Street closed mixed amid mixed report cards (earnings & guidance) and JOLTS job openings data. Techs helped NQ-100 to soar around +1.0%, almost at a record high on hopes & hypes of a blockbuster quarter of earnings. But DJ-30 edged down 0.3% on a subdued report card by some of the index heavyweights. McDonald’s fell due to weaker international sales, Ford plunged after lowering its earnings forecast due to high warranty costs, and Pfizer dropped on weak guidance despite reporting a strong Q3 with a 31% revenue increase. Google Alphabet surged ahead of its earnings report, fueled optimism despite looming antitrust concerns.

On early Wednesday, NQ-100's future surged as Alphabet jumped on earnings beat amid quarterly revenue growth in its cloud division. Snap and Reddit also saw substantial gains amid robust quarterly performances. However, AMD slumped on subdued guidance for Q4CY24. The market is now focusing on upcoming corporate earnings from Meta and Microsoft Wednesday, followed by reports from Apple and Amazon Thursday, along with a deluge of US economic data (GDP, NFP/JOB, and core PCE inflation) followed by US election outcome 5th Nov and Fed decision 7th Nov’24.

On Tuesday, Wall Street was boosted by Communications services (social media and telecoms), and techs, while dragged by utilities, energy, consumer staples, real estate, materials, banks & financials, health care, consumer discretionary, and industrials. DJ-30 was boosted by Boeing, Salesforce, Amazon, Microsoft and Cisco, while dragged by Home Depot, Walmart, Coca-Cola, Travelers, Chevron and Walmart.

Gold scaled a new life time high around 2790 early Wednesday amid renewed geopolitical tensions and record retail buying interest in the Indian Diwali Festival (Dhanteras). There was an increasing war of words between Israel and Iran, threatening each other amid elevated domestic political compulsions, while Russian President Putin approved another yearly ritual of nuke exercise.

Weekly-Technical trading levels: DJ-30, NQ-100, SPX-500, and Gold

Looking ahead, whatever the fundamental narrative, technically Dow Future (42500) now has to sustain over 42800 for any further rally to 42900/43050-43250/43500* and 43700/44000-44500/44800 in the coming days; otherwise sustaining below 42750/42700-42600/650, DJ-30 may again fall to 42400/42300-42100/42000 and 41800/41500-41200/41000* and further 40700/40300-40100/40000* and 39700/394350-39000*/38500 in the coming days.

Similarly, NQ-100 Future (20800) has to sustain over 21100 for a further rally to 21300/21700-21900/22050 and even 23000 levels in the coming days; otherwise, sustaining below 21050/21000-20950/20850, NQ-100 may again fall to 20700/20500-20300/20100 and 19900/19700-19600/19350 to 19100/18900 in the coming days.

Technically, SPX-500 (5880), now has to sustain over 5975 for any further rally to 6000/6050-6100/6150 in the coming days; otherwise, sustaining below 5900-5950/5900-5850/5800, may again fall to 5725-5675/5625-5600/5575*-5550/5500-5475/5450 and 5425/5390-5370/5300* and 5250/5100* and further 5050/4950*-4850/4750 in the coming days.

Also, technically Gold (XAU/USD: 2785) has to sustain over 2810 for a further rally to 2825/2850-2875/2900 and 2925/2950-2975/3000 in the coming days; otherwise sustaining below 2805/2800-2795/2790, may again fall to 2775/2750-2725/2700* and 2675/2650-2625/2600 and 2590/2575-2540*/2500 and further to 2470*/2440-2425/2400-2375/2330-2275 in the coming days (depending upon Fed rate cuts and Gaza/Ukraine war trajectory).