US jobs openings fall sharply

US job openings fell to their lowest level since 2021 in the April JOLTS report, with the decline in vacancies broad-based across sectors. Openings declined to 8.06m, from 8.36m in March, well below expectations. A key metric for the Fed, the ratio of job openings per unemployed person, fell to a value of 1.2. The ratio has fallen sharply in recent months, down from a peak value of 2 in 2022, to reach a level last seen pre-Covid. Markets will watch Friday’s nonfarm payroll data release for any additional signs of the labour market cooling.

US factory orders rose 0.7% m/m in April, unchanged from the pace of growth seen in March, and marginally higher than the 0.6% growth that had been expected. The rate of growth in factory orders remained unchanged even after stripping the more volatile transport component out, at 0.7% m/m, up from 0.4% the month prior.

The Caixin China services PMI rose sharply in May, rising to a value of 54 from 52.5 the month prior. This gain, together with the slight improvement seen in the corresponding manufacturing survey earlier in the week left the composite index at a value of 54.1, its highest reading since May 2023.

Narendra Modi’s BJP has failed to win enough seats to secure an outright majority in the Indian election, contrary to suggestions from exit polls. The BJP and their National Democratic Alliance partners are set to take 292 of the 543 available seats. The opposition, INDIA alliance, performed significantly better than had originally been expected, gaining 233 seats. The results sparked a sharp sell-off in the Nifty 50 index, which fell over 6%.

Today’s Economic Data and Events

17:45 US ADP employment change (May), Forecast: 175k

18:00 US ISM services index (May), Forecast: 51

Fixed Income

US treasury yields fell further on Tuesday, after weaker than expected job openings data. The 2yr yield fell by 4bps to 4.7704%, while the 10yr yield declined by 6bps to reach 4.3259%. There was also a broad-based move lower in major European bond yields on the day, with the 10yr UK Gilt yield falling 4bps to 4.1773% and the 10yr Bund yield declining to 5bps to 2.533%.

Indicative pricing for dual-tranche 5yr and 15yr GBP-denominated bonds, due to be issued by Saudi Arabia’s PIF, has been set at 135bps and 145bps above UK bonds, respectively.

FX

Both the Euro and Sterling unwound part of Monday’s gains against the dollar during trade on Tuesday. EURUSD fell 0.23% to reach 1.0879, while GBPUSD declined by 0.3% to 1.277. The Japanese Yen strengthened sharply against the dollar, following comments from BoJ officials about the potential for a reduction in the amount of bond purchases at their June meeting. USDJPY fell 0.77% to 154.88.

Commodity currencies were weaker against the dollar, with AUDUSD dropping 0.6% to 0.6649, and NZDUSD falling by 0.26% to 0.6177. CADUSD gained 0.36% to 1.3676.

Equities

Weaker than anticipated jobs openings data, fueled a rally in real estate company stocks, on the back of interest rate reduction hopes. The Dow Jones gained 0.36%, the S&P 500 rose 0.15% and the NASDAQ gained 0.17%.

European equity indices fell sharply on Tuesday, as markets look ahead to the ECB decision on Thursday. The CAC 40 fell 0.75%, the EuroStoxx 50 declined by 1% and the DAX dropped 1.09%. The FTSE 100 fell 0.37%.

Locally, the DFM fell 0.18% and the ADX rose 0.11%.

Commodities

Oil futures fell further on Tuesday, with the API reporting a build in US inventories of 4.1m barrels last week. Brent declined by almost 1.07% to USD 77.52/b, while WTI fell 1.31% to USD 73.25/b. Both benchmarks have declined further in early morning trade.