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Daily Market Commentary 7th July 2023

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Equity markets tumbled and US Bond Yields jumped, following an explosive ADP Private Sector Jobs Report. The ADP report showed 497,000 jobs were added to the private sector in June, nearly double expectations. This is exactly the wrong direction that the Fed had expected, putting huge upwards pressure on wages, as tighter monetary policy should lead to a tightening in the labour markets. The ADP report would have been a bolt from the blue for the Fed, but the Challenger Jobs Report confirmed the tightening, (indicated job cuts were much lower than expected) and the Jolts Report revealed fewer job openings. These strong labour numbers will almost certainly force the Fed into further rate hikes and this was reflected in the US Bond Markets. US 2 year bond yields hit 16 year highs and the 10 year yield, broke back above the important psychological 4% level. The US Dollar also showed signs of reversal, with the EUR falling below 1.0900, once again, while the GBP trades around 1.2700.

The shock labour numbers boosted the reserve and put downward pressure on the commodity currencies, with the AUD falling back to 0.6600, while the NZD dropped below 0.6150. Tighter monetary policy will mean more recessionary pressures and slower commodity demand. All eyes will now be firmly focused on tonight’s Non-Farm Payrolls numbers.

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