Gold breaks through US$2,000, US job openings hits 21-month low, ASX 200 to fall

Major US benchmarks experience a slight pullback after a powerful relief rally, US job openings tumble below 10 million for the first time in nearly two years, Apple and Walmart announce further job cuts, Morgan Stanley says the market is hard pressed to find a new bull market while regional bank stocks underperform and gold breaks through US$2,000 an ounce.

Let's dive in.

S&P 500 SESSION CHART

MARKETS

• S&P 500 breaks a four-day winning streak where it rallied 3.9%
• US Treasury yields ease and the US Dollar Index hits a fresh two-month low
• Negative macro surprises including ISM manufacturing, JOLTs and industrial production has been a major theme in recent days and weighed on cyclical pockets of the market
• JPMorgan's Kolanovic warns stocks are in 'calm before the storm' (Bloomberg)
• Bond market volatility is the new reality for traders (Bloomberg)

STOCKS

• Apple (-0.32%): New layoffs targeting corporate retail teams (Bloomberg)
• Walmart (-1.0%): Cutting over 2,000 jobs at e-commerce centres (Bloomberg)
• General Motors (-1.5%): Buyouts to cut 5,000 salaried jobs, says CFO (CNBC)
• Virgin Orbit (-23.2%): Filed for Chapter 11 bankruptcy protection with plans to sell its assets and lay off nearly all of its workforce (CNBC)

ECONOMY

• US labor market loosening as job openings approach two-year low (Reuters)
• ECB says consumer inflation expectations declined significantly (Bloomberg)
• RBA pauses rate hikes, softens views for further tightening (Bloomberg)
• RBNZ seen downshifting pace of rate hikes on Wednesday (Bloomberg)
  
  

Deeper Dive

Recession trade gathers momentum: US job openings

Yesterday's US ISM manufacturing PMI came in at near three-year lows of 46.3 and well-below consensus expectations of 47.5.

Overnight, US job openings came in at 9.9 million, below consensus expectations of 10.4 million and down from 10.6 million a month ago.

There's kind of two ways to look at the jobs data:

1. Job openings ticked down to 9.9 million (lowest since May 2021) and the ratio of vacancies to unemployed workers fell to 1.67 (lowest since late 2021)
2. Job openings are still approximately 3 million above pre-Covid levels and there's still 1.67 jobs for every unemployed aka not recessionary

The negative data has propped up the likelihood of a Fed pause for its May 3 meeting to 59.9%. Although there's plenty of time and incoming data to sway the probabilities.

Mood of the market: Testing the relief rally

The relief rally has helped trading conditions improve as volatility subsides. However, indexes are starting to pull back after a strong bounce from mid-March lows and overbought conditions. Here's some food for thought about where markets are at:

S&P 500 pushing into resistance: The S&P 500 has frequently struggled around this 4,150 level since this May last year. Is this an area where investors should be a bit more cautious or risk off?

Morgan Stanley's Mike Wilson: "We view the Tech sector's recent relative outperformance as a by-product of several factors: Repositioning out of traditional cyclicals post the banking sector events, a growing view that the sector is as defensive as traditional defensives ... and hope that the rate cuts the bond market is pricing come ... we advise waiting for a durable low in the broader market before adding to Tech more aggressively as the sector typically experiences a period of strong outperformance post trough - a time when its cyclicality works in its favour on the upside."

Wilson on a new bull market: "We would also point out that regional bank equities continue to underperform the broader market and remain around the local lows despite expanded government funding programs ... bank stocks are leading indicators, and we would be hard pressed to find a new bull market where they were underperforming."

Sectors to Watch

Gold and silver: The ISM data helped gold rally from session lows of -1.0% to 0.75% on Tuesday and overnight, the jobs data helped it break out above US$2,000 with conviction. The recession trade is gathering momentum as economic data continues to deteriorate. This could see some positive flow for local gold names like Newcrest Mining, Northern Star and Evolution Mining.

Coal: Coal stocks experienced a broad-based rally on Tuesday after Newcastle coal futures rallied 9.2% to US$193 a tonne. Overnight, prices added another 3.6% to reclaim US$200 for the first time since 24 February.

Cyclical sectors: The weakening economic data weighed on cyclical sectors. Industrials, Energy, Materials and Financials were the worst performing S&P 500 sectors overnight. Will this theme carry over to our session?

Lithium: On a side note, Chinese lithium carbonate prices hit 225,500 yuan a tonne on Monday, a fresh 52-week low and down for a 46th straight session. Prices are down more than 50% from all-time highs of 600,000 yuan.