US Open: Stocks turn positive after Jobless Claims rise, Biden’s Budget DOA, Yen strength, Oil rebounds, Gold stabilizes, Crypto pain post Silvergate liquidation

US stocks erased losses after some softening labor data helped cool down this week’s surging Fed rate hike bets. Wall Street is hoping we are about to see a quicker cooling of the labor market, but we probably won’t see major positioning until after Friday’s NFP report. 

Fed Chair Powell seems to have signaled they will accelerate the tightening pace to a half-point rate rise if we get both a hot NFP and inflation reports. Some traders are thinking that if tomorrow delivers a not-so-hot jobs report, that we could see Fed fund futures lean towards a quarter-point rate rise for the March 22nd FOMC meeting.  

US data

Initial jobless claims rose from 190,000 to 211,000 in the week ending March 4^th.  Continuing claims rose from a revised 1.649 million to 1.718 million.  We didn’t get another scorching hot labor reading here and that is giving a little relief in the bond market.  Claims had its biggest upside miss and rose to the highest levels since December, but let’s not kid ourselves, this labor market is still tight.  The uptick in claims was likely impacted by bad weather. 

The February Challenger job cut report showed 77,770 jobs were cut in February, down from the 102,943 lost in January.  The technology sector lost 21,387 jobs, while healthcare declined by 9,749 positions, and the media weakened by 8,984 employees. This is the largest YTD job cuts seen since 2009. 

Today’s labor data is giving a small boost to risky assets as some traders hope this is just the beginning of a more serious softening in labor market conditions. 

Biden

President Biden’s budget will outline the starting point of negotiations for the debt ceiling.  Biden is expected to announce a 5.2% federal pay increase,  $2 trillion in tax hikes, and aims to cut the deficit by nearly $3 trillion.  This budget is dead on arrival but will likely lay groundwork for tense negotiations this summer. 

FX

The Japanese yen is rallying ahead of BOJ governor Kuroda’s last policy decision.  The yen is becoming an easy trade as risk aversion appears to be firmly in place and as currency traders contemplate when the bank will abandon Yield Curve Control. The BOJ rate decision is widely expected to be a non-event  with no change with its short-term rate at -0.10% and keeping the cap of the 10-year JGB yields at 0.50%. 

Oil

Crude prices got a boost on hopes that a softening labor market might be enough to prevent the Fed from sending this economy into a severe recession.  Oil was steady earlier after Russian foreign minister Lavrov reiterated Russia’s commitment to OPEC+.

Decelerating growth continues to weigh on crude prices but if fears of a hard landing for the US economy are alleviated, WTI crude could find a home above the $80 a barrel. 

Gold

Gold is stabilizing near the February lows as traders await Friday’s nonfarm payroll report.  Gold rallied after an upside surprise with jobless claims sent the Treasury yields and the dollar lower. 

Rate hike bets have been ramped up and a hot labor market report might be needed to keep the downward pressure on gold. Gold looks like it might hold the $1800 level, but that could easily break if we get any major hot surprises with Friday’s NFP report or Tuesday’s inflation reading.    

Crypto

The fight for survival did not last long for Silvergate Capital.  After the close, Silvergate Capital announced their intent to wind down operations and voluntarily liquidate the Bank in an orderly manner and in accordance with applicable regulatory processes. 

The crypto banking problem still remains as the cryptoverse now tries to find a new services company to help make payments and other deposit-related services.

Bitcoin is lower and getting very close to the February lows.  This remains a tough environment for crypto given the fallout from Silvergate Capital, so Bitcoin could see further selling pressure test the $20,000 level.  

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