Market Wavers as Job Data Looms; Dollar Faces Correction Amid Surging Treasury Yields

October 6, 2023

During cautious investor sentiment and rising concerns about surging Treasury yields, the stock market saw a minor dip as job market data loomed on the horizon. The Dow Jones Industrial Average closed slightly lower, while consumer staples companies faced substantial losses. Meanwhile, the US dollar underwent a correction due to overbought conditions, influenced by declining Treasury yields and disappointing economic data. In the currency market, the EUR/USD pair rebounded, and the USD/JPY pair saw a decrease, impacting speculators. Sterling rose, and the Australian dollar saw gains, while crude oil prices dropped significantly. Amidst all this, the S&P 500 remained above its 200-day moving average, leaving investors eagerly awaiting the forthcoming job market data’s potential impact on interest rates and the stock market.

Stock Market Updates

On Thursday, the stock market experienced a slight downturn as investors anxiously awaited key job market data scheduled for release on Friday. The Dow Jones Industrial Average closed with a minor loss of 9.98 points, or 0.03%, settling at 33,119.57, while the S&P 500 dipped 0.13% to 4,258.19, and the Nasdaq Composite dropped 0.12% to finish at 13,219.83. Notably, consumer staples companies bore the brunt of the market losses, with Molson Coors shares falling by 6.3%, and Mondelez International and Clorox both declining by over 5%.

Investor sentiment remained cautious as weekly initial jobless claims came in at 207,000, a mere 2,000 increase from the prior week, falling just short of economists’ expectations of 210,000. While this slight rise in jobless claims was in line with market predictions, it was disappointing to some investors hoping for signs of a labor market downturn that might influence the Federal Reserve’s interest rate decisions. The 10-year Treasury yield initially ticked up but ultimately decreased to 4.714%, reflecting the ongoing uncertainty in the market as it transitions from a low-rate environment to a more normalized one. On Friday, the market eagerly anticipated nonfarm payrolls data for September, with economists projecting a gain of 170,000 jobs, a decline from the previous month, as investors hoped for labor market softening that could potentially affect rate hikes and Treasury yields.

Despite a slight boost in stocks on Wednesday, following positive payroll data from ADP, both the broad market index and the Dow are on track for a losing week. The Dow declined by 1.16% over the week and turned negative for the year during Tuesday’s market selloff, while the S&P 500 is down 0.7% for the week, and the Nasdaq has remained relatively flat. Overall, investors are closely monitoring labor market data to gauge potential changes in interest rates and their impact on the stock market.

Data by Bloomberg

On Thursday, the overall market showed a slight decline of -0.13%. Real Estate and Health Care sectors performed well, with gains of +0.67% and +0.49% respectively. Financials and Information Technology also saw growth at +0.38% and +0.25%. However, Communication Services, Utilities, Consumer Discretionary, Energy, Industrials, and Materials sectors all experienced declines, ranging from -0.12% to -1.26%. Consumer Staples recorded the most significant drop, with a decline of -2.07%.

Currency Market Updates

The US dollar faced a decline in its value, as reflected by the dollar index, which retreated on Thursday. This depreciation was attributed to the overbought state of the US currency, influenced by declining Treasury yields. The correction was initiated following disappointing ADP payroll data and mediocre ISM services data earlier in the week, and it was not alleviated by Thursday’s job claims data. Investors were also concerned about the significant increase in 10-year Treasury yields, which had surged from 4.06% to 4.88% since a correction low in September. This surge in yields amplified financial risk beyond the Federal Reserve’s rate increases, potentially reducing the need to maintain high-interest rates for an extended period. While Fed speakers have maintained a hawkish stance, there were worries that soaring Treasury yields could intensify tightening efforts and disinflation. Chicago Federal Reserve Bank President Austan Goolsbee expressed optimism about the economy’s path toward 2% inflation without excessive recession risk.

In the currency market, the EUR/USD pair exhibited a recovery despite challenges, breaching the 10-day moving average. This rebound occurred even as German August exports fell short of forecasts, and an ECB policymaker, Francois Villeroy de Galhau, pointed out that the spike in yields argued against another rate hike. The USD/JPY pair saw a 0.5% decrease as Treasury-JGB yield spreads declined, influenced by factors such as 10-year JGB yields rising to their highest levels since 2013. These developments impacted speculators who were looking for a breakout in USD/JPY, with their expectations dashed by a recent plunge in the pair. Sterling, on the other hand, experienced a 0.45% rise and surpassed resistance levels for the first time since early September, although oversold buy signals would require a close above last Friday’s swing high and weaker-than-anticipated U.S. jobs data for confirmation. Additionally, the Australian dollar rose by 0.7% as high-beta currencies rebounded due to the pullback in Treasury yields and a shift towards derisking, while crude oil prices fell by over 2% following a significant drop the previous day, driven by concerns about demand. Meanwhile, the S&P500 remained above its 200-day moving average.

Picks of the Day Analysis

EUR/USD (4 Hours)

EUR/USD Gains Ground as US Dollar Weakens, Awaiting Jobs Data

The EUR/USD has experienced a two-day climb, nearing the 1.0550 level, driven by a softer US dollar, although the overall trend remains bearish, with future direction dependent on forthcoming US jobs data. Germany’s recent economic indicators reveal a sluggish outlook, reinforcing expectations that the European Central Bank is unlikely to raise interest rates. In the US, despite mixed job market data, a decrease in US yields and a rebound in equities have weakened the Greenback. The upcoming US Nonfarm Payrolls report will be pivotal in determining the EUR/USD’s path, with a strong report poised to reinforce the bearish trend and weak numbers potentially extending the recovery.

Chart EURUSD by TradingView

Based on technical analysis, the EUR/USD went up on Thursday and managed to reach the upper band of the Bollinger Bands. Right now, the EUR/USD is trading below the upper band, which suggests a chance for a small downward move to reach the middle band of the Bollinger Bands. The Relative Strength Index (RSI) is at 56, indicating that the EUR/USD is currently trying to return to a neutral position.

Resistance: 1.0558, 1.0616

Support: 1.0489, 1.0406

XAU/USD (4 Hours)

XAU/USD Nears Multi-Month Low as Dollar Corrects Amid Economic Concerns

The XAU/USD pair is trading close to a recent multi-month low of $1,813 per troy ounce, marking its ninth consecutive day of decline. Despite the US Dollar’s correction from multi-month highs, Gold struggles to attract buyers. Concerns over persistent inflationary pressures and a tight labor market persist as investors remain cautious, driven by hawkish comments from Federal Reserve officials and mixed employment sector signals. With the release of the September Nonfarm Payrolls report looming, the stability in US Treasury yields at slightly lower levels is preventing a near-term Dollar rally.

Chart XAUUSD by TradingView

Based on technical analysis, XAU/USD exhibited consolidation on Thursday. It creates a narrow band of the Bollinger Bands. Currently, the price of gold is squeezed by the bands which indicate that the market is still in waiting mode. The Relative Strength Index (RSI) currently stands at 38, signaling a bearish bias for the XAU/USD pair.

Resistance: $1,834, $1,858

Support: $1,809, $1,777

Economic Data