GOLD TRADING ALERT: Weak U.S. job openings data, a 50 basis point rate cut heats up

Thursday (September 5) the beginning of the Asian market, spot gold narrowly oscillated, currently trading near $ 246.45 / ounce. Gold prices bottomed out on Wednesday, once hit a nearly two-week low of 2471.77 U.S. dollars/ounce, and closed at 2495.45 U.S. dollars/ounce, helped by the decline in the U.S. dollar and U.S. Treasury yields, after the reduction in U.S. job vacancies, raising expectations that the Federal Reserve in September to cut interest rates by 50 basis points.

U.S. job openings fall to fewest in three-and-a-half years, but not enough to make Fed cut rates sharply, it fears

The number of U.S. job openings fell to its lowest level in three and a half years in July, suggesting that the labour market is losing momentum, but the drop may not be enough to push the Federal Reserve to consider a sharp interest rate cut this month.

The U.S. Department of Labor's Job Openings and Labour Turnover Survey (JOLTS) released Wednesday showed a larger-than-expected drop in job openings in July. 1.07 job openings corresponded to each unemployed person in July, the lowest since May 2021 and down from 1.16 in June. The ratio of job openings to unemployed persons peaks at just over 2.0 in 2022.

However, the job market may not have worsened. In its brown book report, the Federal Reserve said that employment levels have been ‘generally flat or slightly rising in recent weeks’.

Investors and Fed officials are watching the labour market closely after the unemployment rate rose for four consecutive months, fueling fears of a recession. Economists are sticking to their forecast that the Fed will cut rates by 25 basis points at its 17-18 September meeting. Much will depend on the August jobs report, scheduled for Friday.

‘Does this report imply that a 50 basis point rate cut will be necessary in September？’ Conrad DeQuadros, senior economic adviser at Brean Capital, asked. ‘We would say no because ...... the ratio of job openings to unemployed remains high by historical standards.’

Job openings fell by 237,000 to 7.673 million on the last day of July from the end of June, the lowest level since January 2021, the Bureau of Labor Statistics said.The number of job openings at the end of June was revised downward to 7.910 million compared with the previous figure of 8.184 million. Job openings are a measure of labour demand.

Economists had previously forecast 8.1 million job openings for July. Job openings peaked at 12.182 million in March 2022 and have declined by 1.1 million in one year. The decrease in job openings was concentrated in small businesses. The job vacancy rate fell to 4.6 percent, the lowest level since December 2020, from 4.8 percent in June.

Hiring increased by 273,000 to 5.521 million. The hiring rate rose to 3.5 percent from 3.3 percent in June. Layoffs increased by 202,000 to 1,762,000, the highest level since March 2023 However, the number of layoffs remained low by historical standards.

The layoff rate rose to 1.1 percent from 1.0 percent in June, which is still low. The Fed's Beige Book report released on Wednesday also highlighted the lower layoffs. The Beige Book showed that five districts reported slight or modest increases in overall employment at the end of August.

However, the report noted, ‘Layoffs remained minimal in some districts that reported firms reducing shifts and hours, failing to fill vacant advertised positions, or reducing headcount through attrition.’

US trade deficit widens

The trade deficit widened by 7.9 percent to its highest since June 2022 at $78.8 billion, a report released Wednesday by the US Commerce Department's Bureau of Economic Analysis showed, underscoring strong domestic demand.

Merchandise imports rose 2.3 percent to the highest level since June 2022 at $278.2 billion. Capital goods imports increased by US$3.3bn to a record high, helped mainly by computer parts.

The Biden administration previously announced plans to impose higher tariffs on electric cars, batteries, solar products and other goods imported from the Asian powerhouse.

The U.S. government said last week that it would announce a final decision ‘in the coming days’. There are also fears that former President Donald Trump will impose higher tariffs on goods from Asian powers if he returns to the White House after the 5 November election.

The politically sensitive merchandise trade deficit with China increased by $4.9 billion to $27.2 billion.

Exports rose 0.5 percent to $266.6 billion. Merchandise exports increased by 0.4 per cent to $175.1 billion. Adjusted for inflation, the merchandise trade deficit was $97.6 billion, up 6.9 percent.

Fed Beige Book: US economic activity expands at slower pace, firms cut hiring

U.S. economic activity expanded at a slower pace from mid-July to late August, and businesses cut back on hiring, signals that underscore the case for the Federal Reserve to begin cutting interest rates later this month.

The Fed's latest medical checkup of the economy's health also showed moderate inflationary pressures, with all but one of the Fed's 12 districts seeing a general easing in input costs.

‘Economic activity increased slightly in three districts, while the number of districts reporting flat or declining economic activity increased to nine in the current report, up from five in the previous report,’ the Fed said Wednesday in the survey, dubbed the “Brown Book,” which surveyed business contacts at the Federal Reserve Banks in each of the districts as of Aug. 26.‘ Employers are more selective in hiring and less willing to expand their workforces, citing concerns about demand and an uncertain economic outlook.’

Fed Chairman Jerome Powell and his colleagues have made it clear that they intend to cut the Fed's target rate from the current 5.25%-5.50% range, which has been in place for more than a year, at their policy meeting on 17-18 September. The only uncertainty was whether a 25 basis point cut in the target rate or a larger-than-normal 50 basis point cut would be required in response to weakening labour market conditions.

Consumer spending declined in most of the Fed's districts, according to the report, which is released roughly every six weeks, and consumption generally held steady during the last reporting period.

Fed's Bostic Warns Against Keeping Restrictive Policies Too Long or Hurting the Job Market

Atlanta Fed President Bostic said on Wednesday that the Fed should not maintain excessively high interest rates for too long or risk doing too much damage to jobs.

In an article published on the Atlanta Fed's website, Bostic said, ‘We cannot maintain a restrictive policy stance for too long.’

Waiting until inflation actually falls back to the Fed's 2% target before lowering borrowing costs, he said, ‘would run the risk of disrupting the labour market and could cause unnecessary pain.’

Bostic added that the recent report on price increases reinforces his confidence that inflation is now on a sustainable path back to the Fed's target and that pricing pressures are diminishing rapidly and broadly.

Business contacts mentioned a slowdown in hiring, but only a few mentioned plans for layoffs, Bostic said.

‘I don't sense an imminent collapse or panic among business contacts. However, the data and our grassroots feedback suggest that the economy and labour market are losing momentum,’ Bostic said.

The Atlanta Fed president also said it was too early to declare a victory over inflation and that he and his colleagues must remain vigilant.

The interest-rate futures market sees the probability of the Fed cutting rates by 50 basis points and 25 basis points in September as close to the same

Fed policymakers are increasingly focused on the U.S. labour market as they prepare for a policy meeting later this month, and their assessment of the health of the job market will be key in determining the magnitude of the rate cut.

Analysts generally expect the Fed to stick with a 25 basis point rate cut as employers continue to hire, albeit at a slower pace than before, and the unemployment rate, while rising, remains at a relatively low 4.3 per cent.

After the release of the data on Wednesday, however, financial markets increased their bets on a significant rate cut by the Fed at its 17-18 September meeting. The interest rate futures market now sees the likelihood of a 50 basis point cut and a 25 basis point cut as close.