The US job market is starting to slow down…

Thoughts of the Day

US Non-Farm Payrolls in October fell short of expectations, revealing +150K new jobs were added (EXP +180K), and the more accurate data showed that +297K jobs were added in September, less than the +336K previously estimated. The Unemployment Rate unexpectedly rose to 3.9% (EXP 3.8%, PREV 3.8%). The data led to decreased odds of a December interest rate hike (from more than 30% a week ago to below 10%).

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Week Ahead

Monday: –

Tuesday: The Reserve Bank of Australia is expected to raise interest rates by +0.25% to 4.35% in its monetary policy meeting.

Wednesday: Federal Reserve Chair Powell is due to deliver opening remarks at the Division of Research and Statistics Centennial Conference, in Washington DC. May talk about monetary policy.

Thursday: The Chinese Consumer Price Index is expected to show a -0.2% decrease in prices on a Year-on-Year basis, down from 0% last month. The Chinese Producer Price Index is expected to show a -2.8% decrease in prices on a Year-on-Year basis, down from -2.5% last month.

Friday: The UK GDP is expected to contract -0.1% Quarter-on-Quarter in the Q3, down from a +0.2% growth in Q2.  

The University of Michigan consumer sentiment is expected to come in at 64, up from 63.8 previously.

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What Happened Yesterday

Market Movements as of New York Close 3 Nov 23 (5 Nov for Crypto)
  • The US Nonfarm Payrolls (NFP) showed that +150k jobs were added to the economy in October (vs +180k jobs expected), down from +297k previously (revised from +336k). The unemployment rate rose slightly to 3.9% (vs +3.8% expected and previous). Labour force participation rate fell slightly to 62.7% from 62.8%. The softening in the US labour market continues and that increases the chance that the US Federal Reserve is at the end of their interest rate hiking cycle. This boosted risk sentiment and helped US bond yields trade much lower on the day.
  • The Canadian employment change showed that +17.5 jobs were added to the economy in October (vs +22.5k expected), down from +63.8k previously. The unemployment rate is expected to rise to 5.7% (vs 5.6% expected) from 5.5%.
  • The US Treasury Yield curve inversion narrowed to 0.26% as the US 2-year bond yield slipped -0.15% to 4.83% while the US 10-year bond yield slipped -0.10% to 4.57%.
  • The US stock futures were relatively muted through the Asian and London trading hours on Friday. It then rallied hard on the weaker than expected NFP numbers.
  • The US stock market opened higher from Thursday and remained at elevated levels through the New York session due to the optimism from the weaker-than-expected US jobs data. Consequently, the S&P 500 closed the day higher at +0.94% (high: +1.29%, low: +0.38%), the Dow increased +0.66% (high: +0.96%, low: +0.32%) while the Nasdaq rose +1.21% (high: +1.54%, low: +0.31%).
  • The crypto market traded mixed over the weekend with Bitcoin down -0.26% and Ether up +1.96%.
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Headlines & Market Impact

China pledges to expand market access at annual trade fair amid foreign criticism

Notable Snippet: China will further expand market access and increase imports, its premier told a trade fair in Shanghai on Sunday, amid criticism from European firms who said they wanted to see more tangible improvement in the country’s business environment.

Li Qiang told the opening ceremony of the annual China International Import Expo that the country was committed to opening up its economy, and that imports of goods and services were set to reach a cumulative $17 trillion within the next five years.

“No matter how the world changes, China’s pace of opening up will never stall, and its determination to share development opportunities with the world will never change,” Li said.

China will promote coordinated development of trade in goods and services, protect an international business environment, and relax market access including lifting restrictions on foreign investment in manufacturing, he said.

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Bad news for the economy is good news for the stock market … as long as it doesn’t get too bad

Notable Snippet: Stocks rallied sharply after the Labor Department said nonfarm payrolls rose by 150,000 in October — 20,000 fewer than expected but a difference attributable pretty much completely to the auto strikes, which appear to be over.

For the Federal Reserve, the relatively muted job creation coupled with wage gains nearly in line with expectations adds up to a scenario in which the central bank doesn’t really have to do anything. It can just continue to let the data flow in, without having to move on interest rates as it evaluates the impact of its previous 11 hikes.

“The Fed finally got what it’s been looking for — a meaningful slowdown in the labour market,” said Mike Loewengart, head of model portfolio construction for Morgan Stanley’s Global Investment Office.

“We’ve seen one or two head fakes in this direction before, but the fact that this report followed other weaker-than-expected economic data points this week may encourage investors who have been waiting for a less-hawkish Fed,” he added.

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Elon Musk debuts ‘Grok’ AI bot to rival ChatGPT, others

Notable Snippet: Grok, the company said, is modelled on “The Hitchhiker’s Guide to the Galaxy.” It is supposed to have “a bit of wit,” “a rebellious streak” and it should answer the “spicy questions” that other AI might dodge, according to a Saturday statement from xAI.

Grok also has access to data from X, which xAI said will give it a leg-up. Musk, on Sunday, posted a side-by-side comparison of Grok answering a question versus another AI bot, which he said had less current information.

On an initial round of tests based on middle school maths problems and Python coding tasks, the company said that Grok surpassed “all other models in its compute class, including ChatGPT-3.5 and Inflection-1.” It was outperformed by bots with larger data troves.

The company’s self-stated mandate is to build artificial intelligence “to advance our collective understanding of the universe.” Musk has previously said that he believes today’s AI makers are bending too far toward “politically correct” systems. xAI’s mission, it said, is to create AI for people of all backgrounds and political views.

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Phan Vee Leung
CIO & Founder, TrackRecord