The Week Ahead
A mixed week for asset classes amid broadly hawkish Fed rhetoric, heightened geopolitics and the hugely strong US employment report witnessed the yield on the 10-year rise 40bps to 4.40%, while the S&P Index fell 0.95%. Meanwhile, the dollar soared to all-time highs earlier in the week, eventually selling-off after the disappointing US ISM services print; the DXY Index closed 0.18% lower last week. Oil prices jumped to new cycle highs amid escalating geopolitics and OPEC+’s confirmed 1H24 cuts, Brent gained 4.22% last week, closing at $91.17pb
The holiday-shortened week kicked off with a surprisingly strong US ISM manufacturing print, which jumped into expansion territory for the first time since September 2022. Later, the ISM Services Index missed expectations and fell to the lowest level since December 2023. The prices paid component sharply declined, new orders also fell, while employment rose marginally, although remained in contraction. Next, the strong US employment print sent shockwaves through the UST curve on Friday, as the non-farm payroll figure smashed expectations for +214k, at 303k, coupled by a two-month upward revision. Interestingly, the household survey, which rose by 498k, showed a drop in household employment among the prime workforce, i.e., those aged between 25-54, with the increase driven by those employed either side. Unemployment strengthened to 3.8%, from the two-year high of 3.9% in February, while average hourly earnings eased to 4.1%yoy.
In terms of Fed speak, we had members Mester and Daly both reiterating that although there is no urgency to cut rates, they expect three cuts this year depending on the path of inflation. We then heard from Fed Chair Powell who stuck to the script, he also mentioned the easing PCE readings are making some progress towards the 2% target. On Thursday, the Fed’s most hawkish governor, Kashkari, a non-voter this year, questioned the need for any cuts at all this year if growth remains strong and inflation continues to stall. On Friday, Barkin said disinflation will likely continue, but the rate at which is unclear; he also noted the strong employment sector. Meanwhile, Bowman stated that it's not the time to cut rates, adding that upside risks to inflation remain.
We had some upbeat data out of China, following the better-than-expected official manufacturing PMI, the Caixin PMIs also surprised to the upside; the manufacturing print came in at 51.1, with the services reading at 52.7. The nation’s FX reserves climbed to USD3.245tn in March. US-China relations also appeared on a “stronger footing” according to US Treasury Secretary Yellen, following her six-day visit to China.
This week markets will closely monitor US CPI (Wednesday), US PPI, China PPI and CPI, and the ECB policy meeting (Thursday), and China trade data and earnings season kicks-off (Friday). We’ll hear from the Fed’s Kashkhari and ECB’s Stournaras (Monday), Fed’s Goolsbee (Wednesday), Fed’s Williams and Collins, and the BoE’s Greene (Thursday), and the Fed’s Daly (Friday).
If you would like to receive The Daily Update to your inbox, please email markets@epicip.com or click the link below.