Hey folks, even though we had a rare down week given the dramatic drop we saw on Thursday a strong finish on Friday with the US Jobs Numbers lessened the pain…Get my take on current market price action and where to from here.
MARKET SOUND BITES:
US Indexes pulled back from record highs, as U.S. Treasury yields increased in response to signs that the manufacturing sector might finally be gaining traction. Energy stocks outperformed as oil prices reached their highest level since October on worries over rising tensions between Israel and Iran and a decision by major exporters to maintain production limits despite tight markets.
The ISM services report, released Wednesday, appeared to ease worries. While still indicating expansion, the services index fell back for the second consecutive month—and, more significantly, perhaps, the index of prices paid fell back to its lowest level since pandemic lockdowns began in March 2020. The Friday jobs report showed employers added 303,000 jobs in March (23% were Gov Jobs), well above expectations, and the most in nearly a year while unemployment rate ticked down from 3.9% to 3.8%. And from a wage pressures standpoint, the solid gains came with only a modest increase in average hourly wages, from 0.2% in February to 0.3% in March or 4.1% annually (smallest gain since June 2021). Part of the reason may have been a solid rise in the labor force participation rate, suggesting that employers might be enjoying an easier time filling empty slots. Equity investors welcomed signs of a healthy economy in the jobs report, but the yield on the benchmark 10-year U.S. Treasury note jumped on the news; earlier in the week, it hit its highest intraday level since late November ending the week at 4.38%.
On Thursday many Fed Governors spoke at various events and all of them signaled a slowdown in the expected rate cuts the markets are looking for and as a result we had a large sell-off in the markets across all US markets.
Headline annual inflation in the eurozone decelerated more than forecast to 2.4% in March from 2.6% in February. Core inflation, which excludes volatile food and energy prices, also slowed to 2.9% from 3.1%. The year-over-year increase in service prices, however, came in at 4.0% for the fifth consecutive month. S&P Global revised its estimate for the eurozone’s composite purchasing managers’ index (PMI), which includes services and manufacturing, to 50.3 in March from an initial 49.9. A reading above 50 indicates an expansion of private sector business activity. In addition, the ECB felt that the case for rate reductions was strengthening but that it would be prudent to wait for key economic data that are scheduled to come out after their meeting in April.
As the Bank of Japan (BoJ) hinted that another interest rate hike may be on the horizon, the yield on the 10-year Japanese government bond rose to 0.77% from 0.72% at the end of the previous week. BoJ Governor Kazuo Ueda signaled that the central bank could use monetary policy to address the historic weakness in the yen. The BoJ targets a 2% level of inflation in a sustainable manner, accompanied by growth in wages, and asserts that monetary policy normalization hinges on these preconditions being met.
Meanwhile, in China, March’s indicators reinforced hopes their economy may start to recover. Their manufacturing PMI rose to an above-consensus 50.8 in March, up from 49.1 in February while their nonmanufacturing PMI grew to a better-than-expected 53.0 from 51.4 in February. Separately, the private Caixin/S&P Global survey of manufacturing activity edged up to 52.7 in March, in line with expectations and marking its 15th month of expansion. And the People’s Bank of China said in its Q1 policy report that it will continue stimulus to encourage demand to support its annual growth target of 5% as it grapples with weak consumer confidence. Real Estate market in China continues to be a large drag on the economy with new home sales slumping over 49% year over year.
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