April US jobs data misses forecasts

Both bond and equity markets rallied on Friday after weaker than expected April employment data in the US. “Only” 175k jobs were added last month, against a median forecast for 240k and down from 315k (revised) in March. This was the smallest increase in non-farm payrolls since March 2023, and the slowdown in job growth was broad-based: construction, leisure and hospitality and government all saw much weaker job growth in April relative to March. The unemployment rate increased to 3.9% from 3.8% in March and average hourly earnings growth slowed to 0.2% m/m and 3.9% y/y (from 0.3% m/m and 4.1% y/y in March).

While the April non-farm data was softer than expected, it would be a stretch to describe it as “weak”, particularly in the context of sticky inflation and otherwise robust economic data in Q1 2024. Nevertheless, the NFP data, along with a weaker than expected ISM services print for April (49.4 from 51.4 in March) helped to quash some of the “no landing” fears. There was some repricing of fed funds futures to reflect a higher probability of a September rate cut than had been priced before the NFP data. We retain our view that the first move from the Fed will likely be a 25bp cut at the September meeting.

China’s Caixin Services PMI declined slightly in April to 52.5 (52.7 in March) but was in line with forecasts and indicated improving business conditions in the small and mid-sized firm segment last month. However, employment contracted for the third consecutive month. The Caixin composite PMI ticked up to 52.8 from 52.7 in March.

Saudi Arabia’s PMI was unchanged at 57.0 in April, with output and new work growth slowing only slightly from March and rising at a still-strong pace. Employment in the non-oil private sector edged lower in April for the first time since March 2022. Inflationary pressures have eased, with the purchase costs index falling to the lowest level since last summer, after surging in January on the disruption to Red Sea shipping routes.

CPI in Turkey rose 3.2% m/m and 69.8% y/y in April, slightly higher than March but slower than the market had been expecting. Wage increases have fuelled inflation in recent months but a peak is expected as soon as this month, and the central bank expects inflation to slow sharply in H2 to end the year at 36%. Households are far more pessimistic about the inflation outlook according to recent surveys, however.

In a relatively quiet data week, the Bank of England is likely to be the main event. The MPC is expected to keep rates on hold at 5.25% on Thursday but the focus will be on post meeting commentary and updated forecasts to see if June is a live meeting for a rate cut. The first estimate for Q1 GDP growth in the UK will also be released at the end of the week.

Today’s Economic Data and Events

12:00 EU composite PMI (Apr, F) forecast 51.4

Fixed Income

• Treasuries rallied across the curve after Friday’s lower than forecast US payrolls report, as markets brought forward the expected timing of the Fed’s first rate cut. The 2y bond yield fell -6bp on Friday to 4.82% but was down more than -20bp from last Tuesday’s peak of 5.03%. The 10y treasury yield fell to 4.51% on Friday, down -11bp w/w to the lowest level in almost a month. The 30y yield declined -7bp w/w to 4.66%.
• Benchmark 10y yields declined almost across the board last week, with Japan and Switzerland being the notable exceptions: the 10y JGB yield rose 1.1bp w/w to 0.89%, while the 10y Swiss yield rose almost 4bp to 0.64%.

FX

• The USD spot index weakened last week, with the dollar losing 0.85% against a basket of major trading partner currencies. JPY gained over 3% w/w after the ministry of finance intervened in the market, while EUR gained 0.6% w/w against the USD to 1.08. GBP also rallied last week to end the week 0.4% firmer at 1.25.
• AUD and NZD strengthened 1.2% against the USD last week, finishing at 0.661 and 0.601 respectively while CAD was fractionally weaker w/w at 1.3686.

Equities

• US equities rallied on Friday to end the week slightly higher, after a weaker than expected NFP reading led to lower bond yields. The Nasdaq100 rallied 2% on Friday, spurred by better than expected earnings and a bumper share buyback announcement from Apple. Overall, the Nasdaq100 closed up almost 1% w/w while the S&P500 rose 0.6% w/w.
• In Europe, the FTSE100 was the best performer last week, gaining 0.9% w/w while Eurostoxx50 index fell -1.7% w/w.
• Locally, the DFMGI and ADXGI were slightly lower on the week, even after a positive session on Friday. The Saudi Tadawul ASI gained 1.2% w/w.

Commodities

• Both Brent and WTI declined last week as geopolitical tensions in the middle east eased somewhat amid discussions between the US and Saudi Arabia. Concerns over softer demand returned to the fore after the EIA estimated a decline in US gasoline demand in April, while non-OPEC supply, particularly from the US, continues to rise. Brent ended the week -7.3% lower at USD 82.96/b while WTI declined -6.8% w/w to USD 78.11/b.