The week began with another government shutdown, albeit shorter and less severe than October’s. The Senate passed five of the six remaining measures to fund the government. Democrats initially refused to vote for a bill authorizing continued spending on ICE. House Democrats did not initially guarantee the votes to pass the final measure, ultimately capitulating with an extension of current ICE funding to February 13. They have issued 10 formal demands to GOP leadership to avert said deadline with the latter publicly refusing to cave. Public opinion has been shifting on the matter, so there may be room for additional progress to be made. Either way, this week’s JOLTS data was delayed by two days and the Nonfarm Payrolls report was delayed until February 11. 

Rumblings continue in overnight repo markets as SOFR rates remain elevated relative to the Fed funds rate. This reflects a lack of capacity for banks to effectively absorb short term liquidity crunches. A new mechanism colloquially referred to as PORTS (Perpetual Overnight Rate Treasury Securities) is designed to be issued daily at auctions with settlement on a blockchain. The downside is that if investors begin moving to the PORT sector, it could limit the appetite for maintaining reserves with the Fed and for longer-dated Treasuries. This could lead to elevated rates on the long end of the curve. We’ll have more on this new program as it develops. 

A trio of weak jobs reports sent bond yields down by as much as 10 basis points intraday on Thursday. The Challenger Job Cuts report posted a 117.8% increase in announced job cuts YoY for January while jobless claims rose more than expected. After months of being “little changed,” the delayed JOLTS report showed job openings fell by 386,000 to 6.5 million in December, bringing the openings rate down to 3.9% from its recent peak of 4.6% in September. The hiring rate remained in its recent range of about 3.3%. With the concurrent reduction in openings, the lower rate highlights continued weakness in the labor market. At the most recent Fed meeting press conference, Chair Powell commented that they decided to pause this time because labor market indicators suggested “conditions may be stabilizing after a period of gradual softening.” This data flipped that narrative and increased the probability for a rate cut to 55% for the June meeting. 

KEY INDICATORS THIS WEEK

Gold - The precious metal had one of its most volatile weeks on record; after briefly eclipsing $5,500/oz last week it fell below $4,700 on Monday and is trading just below $5,000 as of this writing. The recent price surge has been indicative of a trend away from the U.S. dollar. 
Total Vehicle Sales - Wards reported 14.85 million sales for January, below estimates for 15.2 million.
Next Week – Nonfarm payrolls! (for real this time)