InvestMacro

By JustMarkets

A Nonfarm Payrolls report on Friday showed that US nonfarm payrolls rose by 236,000 in March, in line with a forecast of 239,000. February’s data was revised upwards. 326,000 jobs were added instead of 311,000. The US unemployment rate fell to a record low of 3.5%. At the same time, annual payrolls rose at the slowest rate since June 2021. Although the employment report showed significant growth, some sectors saw moderate declines, particularly manufacturing, and construction. But overall, such data leaves the US Federal Reserve with room for another rate hike at the next meeting. The market currently estimates a 70% probability that the Fed will raise interest rates by 25 basis points in May. The US stock indices did not trade on Friday due to the holidays. By the end of the week, the Dow Jones Index (US30) increased by 1.77%, and the S&P 500 Index (US500) jumped by 1.20%. The NASDAQ Technology Index (US100) gained 0.47% in 5 days.

Tesla (TSLA) announced plans to build a new plant in Shanghai to produce energy storage products.

Equity markets in Europe were also closed Friday. By the end of the week, German DAX (DE30) gained 0.19%, French CAC 40 (FR40) added 0.74% over the week, Spanish IBEX 35 (ES35) gained 0.89%, British FTSE 100 (UK100) jumped by 1.59% over five trading days.

According to the ECB Governing Council spokesman Klaas Knot, Europe’s central bank should continue to raise borrowing costs, with a slower pace of tightening being justified. The Dutch banker also added that even if the ECB reaches an interest rate level that the bank believes will return inflation to 2% in the medium term, the ECB may have to hold interest rates at this peak level for a long time.

Last week Israel’s Central Bank softened the pace of monetary policy tightening, recognizing the potential risks to monetary policy posed by the government’s scandalous “judicial reform.” Sri Lanka kept rates unchanged after receiving a loan from the International Monetary Fund, while Australia, Romania, Chile, Poland, and India also kept borrowing costs unchanged.

Oil prices remained stable at the end of last week. Investors are weighing the prospect of supply cuts by OPEC+ producers in May against concerns about weakening global growth, which could reduce demand for the fuel. Investors are also watching the progress of negotiations between Iraq and “Kurdistan” to restart northern oil exports, which could bring more oil to the global market.

Asian markets mostly rallied last week. Japan’s Nikkei 225 (JP225) declined 2.43% over the week, China’s FTSE China A50 (CHA50) was little changed over the week, Hong Kong’s Hang Seng (HK50) gained 0.30% over the week, India’s NIFTY 50 (IND50) added 3.52%, and Australia’s S&P/ASX 200 (AU200) was positive 1.30% over the week.

An analysis of global financial conditions shows that Asian financial markets have tightened less than in the US, and most Asian currencies have strengthened against the US dollar. Except for Japan, the region’s financial stock index has risen since 10 March (the day of the Silicon Valley bank crash) compared to the US bank index’s fall of almost 10% over the same period. This suggests that the Asian economy remains relatively well insulated from the US and European economies. Economists believe one factor favoring the Asia-Pacific region is a generally softer turn in monetary policy, with central banks in Australia, South Korea, Indonesia, and India putting tightening cycles on hold.

According to analysts, Hong Kong and Thailand, which are benefiting from China’s reopening, as well as domestic service-oriented economies such as India and the Philippines, “look relatively more resilient” to the global shock. And Singapore will be the main beneficiary of growth in the region.

Japan is poised to sharply increase its spending on chips as it tries to consolidate its position in the global semiconductor market, as it cuts exports amid a US drive to curb China’s technological ambitions. Japan is expected to spend $7 billion on manufacturing equipment next year, up 82% from this year.

The Chinese military simulated spot strikes on Taiwan on the second day of exercises around the island on Sunday, with the island’s defense ministry reporting several air force sorties and keeping an eye on Chinese missile forces. The US embassy in Taiwan said on Sunday that the United States was closely monitoring China’s drills around Taiwan and was confident that it had enough resources and capabilities regionally to ensure peace and stability. For his part, French President Macron said after a visit to China that Europe should reduce its dependence on the United States and avoid becoming embroiled in a China-US confrontation over Taiwan.

In the commodities market, futures on coffee (+6.92%), WTI oil (+6.33%), Brent oil (+6.32%), sugar (+6.20%), gasoline (+4.55%), silver (+4.03%) and lumber (+2.99%) showed the biggest gains last week. Futures on natural gas (-8.17%), corn (-2.42%), and wheat (-2.42%) showed the biggest drop.

S&P 500 (F) (US500) 4,105.02 +0 (+0%)

Dow Jones (US30)33,485.29 +0 (+0%)

DAX (DE40) 15,597.89 +0 (+0%)

FTSE 100 (UK100) 7,741.56 +0 (+0%)

USD Index 102.10 +0.27 (+0.27%)

• – US FOMC Member Williams Speaks at 23:15 (GMT+3).

By JustMarkets

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.

By Christopher Decker, University of Nebraska Omaha 

The latest jobs report is in, and the good news is Federal Reserve policy on inflation appears to be working. The bad news is Fed policy on inflation appears to be working.

The March 2023 jobs report reveals that the U.S. economy added 236,000 jobs during the month – roughly in line with expectations. A trend does appear to be emerging as the U.S. central bank’s efforts to slow the economy down and tame inflation appear to finally be working on the labor market, with some companies feeling the effect of increased business costs.

While that will calm the nerves of monetary policymakers, it does raise the prospect of some economic pain ahead – not least for those who will indeed lose their jobs. And for the wider economy, it could also signal another slightly unwelcome phenomenon: the “growth recession.”

What is a growth recession?

Growth recessions occur when an economy enters a prolonged period of low growth – of say 0.5% to 1.5% – while also experiencing the other telltale signs of a recession, such as higher unemployment and lower consumer spending. The economy is still expanding, but it may feel just like a recession to regular people. Some economists consider the 2002 to 2003 period to have been a growth recession.

For now, the job market is still relatively robust. In March, the unemployment rate even edged downward very slightly to 3.5% from 3.6% the previous month.

Effectively, in terms of job additions, this still-healthy increase nevertheless does suggest a slowdown in hiring. The 236,000 jobs added in March is down from the 326,000 and 472,000 added in February and January, respectively.

A slowdown has been anticipated and suggested by other data for some time now. Eye-grabbing headlines about bank failures and layoffs in the tech sector also signal a slowdown.

Other data hint at more employment pain to come. The February Job Openings and Labor Turnover report from the Bureau of Labor Statistics posted a job openings number below 10 million for the first time since May 2021 – a downward trend that has been in place since December 2021, when openings peaked at 11.8 million.

Meanwhile, the U.S. Census Bureau recently reported that new manufacturing orders fell by 0.7% in February 2023. Indeed new orders declined in three of the last four reported months, and prior to that, orders growth had been sluggish at best.

In terms of sectors, job declines in construction – down by 9,000 – and manufacturing – down by 1,000 – are as expected, as both sectors are sensitive to interest rate increases.

It is quite likely that such declines will continue in coming months.

Other sectors posted substantial gains. Health services were up 50,800, and leisure gained 72,000. However, these gains are still smaller than in previous months.

What this means for Fed policy

This report seems to suggest that Fed actions to slow the economy are working, even though inflation still remains well ahead of its 2% target.

I believe this probably won’t significantly alter Fed policy. Indeed, it suggests that the year-old campaign of using aggressive interest rate hikes to tame inflation appears to be paying dividends. The slow drip of data proving this allows monetary policymakers to manage the economy as they try to provide a so-called “soft landing.”

If the April jobs report is similar to March’s, and barring any unusual events between now and its release in May, I expect the Fed to inch rates up very slowly, likely by another quarter basis point.

Where this leaves the economy as the year progresses, only time – and more data – will tell. But from where I stand, the economy looks to be heading toward a downturn by the fall. The question is whether it will take the form of a mild recession – which will include periods of economic shrinkage – or whether, as I suspect, it will be a low-growth recession. Either way, it will involve some pain.

About the Author:

Christopher Decker, Professor of Economics, University of Nebraska Omaha

This article is republished from The Conversation under a Creative Commons license. Read the original article.

By JustMarkets

At the close of the stock market on Thursday, the Dow Jones Index (US30) increased by 0.01%, and the S&P 500 Index (US500) added 0.36%. The NASDAQ Technology Index (US100) gained 0.76% yesterday.

Weekly jobless claims in the US are falling. Initial jobless claims fell by 18,000 in the last week from 246,000, exceeding economists’ forecast of 200,000 applications and reinforcing expectations of a cooling labor market. An important monthly labor market report will be released today, namely the change in nonfarm payrolls. Analysts forecast that the US economy will add 238,000 jobs in March after an increase of 311,000 in February. The unemployment rate is forecast to remain at a low of 3.6%. With low liquidity due to the closure of other financial exchanges in Asia and Europe (Good Friday holiday), this report could cause a significant spike in volatility.

The Federal Reserve should stick to raising interest rates to reduce inflation while the labor market remains strong, given the high probability that recent financial stresses will continue to ease and in the absence of a marked tightening of credit conditions, St Louis Fed President James Bullard said on Thursday. Bullard previously said he had raised his estimate of how high the Fed’s benchmark overnight interest rate should rise by the end of 2023 to a range of 5.50%-5.75%.

Equity markets in Europe were mostly up yesterday. German DAX (DE30) gained 0.50%, French CAC 40 (FR40) added 0.12%, Spanish IBEX 35 (ES35) increased by 0.67%, and British FTSE 100 (UK100) closed with a 1.03% gain.

ECB spokesman Philip Lane said yesterday that if the ECB’s economic outlook remains unchanged by the May meeting (4 May), a rate hike would be appropriate. His comments followed a stronger-than-expected rise in industrial production in Germany in February, which, combined with strong business activity data on Wednesday, made the eurozone economy avoid recession in the first quarter. Analysts are now forecasting a 0.25% interest rate hike at each of the next 2 ECB meetings.

Natural gas futures resumed their downtrend, closing the current week down almost 10%. Natural gas is down for the 4th week in 5. The monthly contract has once again fallen below the key support level of $2, with new lows likely in the coming days. Natural gas storage in the US fell only slightly last week as cooler-than-normal weather led to sustained demand for heating. According to the EIA, the storage volume is now 32% higher than a year ago and nearly 20% higher than the five-year average.

Asian markets traded flat yesterday. Japan’s Nikkei 225 (JP225) decreased by 1.10%, China’s FTSE China A50 (CHA50) fell by 0.58%, and Hong Kong’s Hang Seng (HK50) added 0.01%, India’s NIFTY 50 (IND50) increased by 0.24%, and Australia’s S&P/ASX 200 (AU200) ended the day down by 0.31%.

Haruhiko Kuroda will hold his last press conference as head of Japan’s central bank today, ending a decade of soft monetary policy. Shock therapy was one of the key features of Kuroda’s monetary experiment, under which the Bank of Japan rolled out a massive asset purchase program in 2013.

Today is a Good Friday holiday. Most financial exchanges will be closed. Only the US futures and forex exchanges will be open part-time.

S&P 500 (F) (US500) 4,105.00 +14.62 (+0.36%)

Dow Jones (US30)33,485.29 +2.57 (+0.0077%)

DAX (DE40) 15,597.89 +77.72 (+0.50%)

FTSE 100 (UK100) 7,741.56 +78.62 (+1.03%)

USD Index 101.90 +0.05 (+0.04%)

• – US Nonfarm Payrolls (m/m) at 15:30 (GMT+3);
• – US Unemployment Rate (m/m) at 15:30 (GMT+3).

By JustMarkets

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.

By JustMarkets

In the United States, the ISM manufacturing and services business activity index fell short of expectations in March, indicating a clear deterioration in demand conditions. If the business activity does not recover soon, layoffs could accelerate in the coming months, exacerbating labor market problems and pushing the country into a painful recession. The ADP National Employment report showed that US private employers hired far fewer workers than expected in March, adding to the signs of a cooling labor market after Tuesday’s weak jobs data. Stock indices are once again under pressure. As the stock market closed Wednesday, the Dow Jones Index (US30) increased by 0.24%, while the S&P 500 Index (US500) fell by 0.25%. The NASDAQ Technology Index (US100) lost 1.07% yesterday.

Cleveland Fed President Loretta Mester said Wednesday that it is too early to tell if the Fed needs to raise the benchmark rate at its next policy meeting in early May. The US interest rate futures markets currently estimate a 60.5% chance that the Fed will leave rates unchanged at its next meeting.

Recent Bloomberg research has unexpectedly shown that the biggest “short” in the banking industry in the world is not in Switzerland or Silicon Valley in the US but in the relatively quiet financial center of Canada. In recent weeks, sellers have increased their bearish positions against Toronto-Dominion Bank, Canada’s second-largest lender, with $3.7 billion in total capital, more than BNP Paribas (BNPP) and Bank of America (BAC). There is little indication that the Canadian lender has any liquidity problems. But analysts point to concerns about TD’s exposure to the domestic housing slowdown, as well as its ties to the US market through its stake in Charles Schwab (SCHW) and its planned acquisition of a regional US bank.

Equity markets in Europe traded flat on Tuesday. German DAX (DE30) decreased by 0.53%, French CAC 40 (FR40) lost 0.39%, Spanish IBEX 35 (ES35) gained 0.35%, and British FTSE 100 (UK100) was up by 0.37% yesterday.

According to analysts, the ECB will continue to tighten monetary policy with no signs of any disinflationary process, discounting energy and commodity prices and the fact that inflation is increasingly dependent on demand. Two more interest rate hikes of 0.25% at each meeting are currently expected.

In the precious metals market, the situation has not changed. Falling government bond yields, caused by the dovish review of the Fed’s monetary policy course, will continue to act as a tailwind for gold and silver. The US Treasury curve has shifted sharply downward since mid-March following the turmoil in the US banking sector, and recent macro data have reinforced investors’ views that the US economy is in trouble.

The weekly US inventory report on Wednesday showed that the government has again cut reserves to boost market supply and limit fuel price spikes. Clearly, there is a standoff between the US and OPEC+ countries. The Biden administration has relied heavily on reserves since late 2021 to offset limited inventories and lower black gold prices. In turn, OPEC+ countries are cutting production to create shortages and allow oil prices to continue their upward rally.

Asian markets traded flat yesterday. Japan’s Nikkei 225 (JP225) decreased by 1.07%, China’s FTSE China A50 (CHA50) and Hong Kong’s Hang Seng (HK50) did not trade yesterday, India’s NIFTY 50 (IND50) gained 0.77%, and Australia’s S&P/ASX 200 (AU200) ended the day negative by 0.09%.

The latest Caixin report showed that service sector activity in China grew at its fastest pace in 2.5 years in March, thanks to solid new orders, new job creation, and a post-pandemic recovery. The Caixin Global Services Purchasing Managers’ Index (PMI) rose to 57.8 in March from 55.0 in February, increasing for the third straight month. The 50-point mark separates expansion and contraction in activity.

India’s Central Bank left the interest rate unchanged at 6.5%. This was a surprise, as analysts had expected a 0.25% increase. But the Reserve Bank of India said it was ready to act against inflation if further conditions warranted.

S&P 500 (F) (US500) 4,090.38 −10.22 (−0.25%)

Dow Jones (US30)33,402.38 −198.77 (−0.59%)

DAX (DE40) 15,520.17 −83.30 (−0.53%)

FTSE 100 (UK100) 7,662.94 +28.42 (+0.37%)

USD Index 101.94 +0.35 (+0.34%)

• – Australia Trade Balance (m/m) at 04:30 (GMT+3);
• – China Caixin Manufacturing PMI (m/m) at 04:45 (GMT+3);
• – China Caixin Services PMI (m/m) at 04:45 (GMT+3);
• – Indian Interest Rate Decision at 07:30 (GMT+3);
• – Switzerland Unemployment Rate (m/m) at 08:45 (GMT+3);
• – US Natural Gas Storage (w/w) at 17:30 (GMT+3).
• – German Industrial Production (m/m) at 09:00 (GMT+3);
• – UK Construction PMI (m/m) at 11:30 (GMT+3);
• – US Initial Jobless Claims (w/w) at 15:30 (GMT+3);
• – Canada Unemployment Rate (m/m) at 15:30 (GMT+3);
• – Canada Ivey PMI (m/m) at 17:00 (GMT+3);

By JustMarkets

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.