US unemployment rises to two-year high

There was a net gain of 275,000 jobs on the US nonfarm payrolls report for February released on Friday, beating the predicted 200,000. However, the picture was somewhat complicated by sizeable downwards revisions to the two previous readings, with a total 167,000 fewer jobs created in December and January than had previously been supposed. Moreover, the strong hiring in February was concentrated in just a few sectors, with healthcare, leisure, hospitality and government accounting for the bulk of the gains, and the unemployment rate rose, from 3.7% previously to 3.9%, a two-year high. Encouragingly for the Federal Reserve, average hourly earnings rose just 0.1% m/m, down from 0.5% in January and lower than the consensus prediction of 0.2%. Earnings were up 4.3% y/y. Jerome Powell gave some equivocal messaging in his testimony to Congress last week, although he did say that it would be appropriate to cut rates ‘at some point this year’, and weakening labour market data will support that easing process. The market implied rate suggests almost 100bps of cuts this year now, from 75bps not long previous.

Egypt CPI inflation came in at 35.7% y/y, up from 29.8% in February, while prices were 11.4% higher than the previous month. Food and beverages prices, the largest component of the basket, were up 50.9% y/y and 16.7% m/m. Meanwhile, Egypt’s finance minister, Mohamed Maait, has announced that the World Bank is set to provide Egypt with USD 3bn in support, following on from the UAE investment and the enlargement of the IMF deal announced over the past several weeks.

Saudi Aramco has increased its dividend payout to USD 97.8bn, a 30% y/y increase, even as net profits declined by 25% to USD 121.3bn as oil prices and production declined. Capital investments rose 28% to USD 49.7bn, and this is projected to come in between USD 48bn and USD 58bn this year. Meanwhile, Saudi Arabia’s GDP contracted 4.3% y/y in Q4 on the final print, a larger decline than on the initial print of -3.7%. Saudi GDP declined 0.8% in 2023, with the losses driven by oil GDP which shrank by 9.0% as production curbs were maintained, while the non-oil sector recorded growth of 4.4% and government activity grew 2.1%.

German industrial production surprised to the upside in January as it rose 1.0% m/m, beating the predicted 0.6% gain. This was the first time production had risen since April 2023, and it marked something of a recovery from the 2.0% contraction recorded in December, itself a downward revision from the initial 1.6% decline. Output in January was 5.5% lower than a year previous, however, as it has struggled to pick up convincingly since the end of th e Covid-19 pandemic. Other data points out of Germany have remained weak, with the January factory orders released the previous day showing an 11.3% m/m decline. The weak performance from Germany will keep pressure on Eurozone growth more generally. Q4 GDP was confirmed at 0.0% q/q and 0.1% y/y on the final print, also released on Friday.

Japan’s Q4 GDP was revised from a 0.4% contraction on the initial print, to 0.4% annualised q/q growth, meaning that the country avoided recession after all last year. This was not as big as the predicted upwards revision to 1.1% growth, and consumption data remained weak, but nevertheless the BoJ is still expected to raise rates in the coming months.

Today’s Economic Data and Events

No notable data releases expected today

Fixed Income

• US Treasuries initially saw strong gains on the back of the fairly mixed NFP report on Friday, with yields on the 2yr falling by as much as 10bps. However, by the end of the day the yield was down just 2.8bps to a close at 4.4735%. Yields were down 5.8bps over the week as bets on rate cuts ramped up. Yields on the 10yr were almost unchanged on Friday at 4.0749%, but were down 10bps over the week.
• In Europe, yields on 10yr bunds fell 15bps over the week to 2.27%, while 10yr gilts dropped 14bps to 3.98%.
• After the positive development in Egypt, yields on its USD dominated bonds have fallen sharply. The yield on the 2028 eurobond was at 8.996% on Friday, down from 15% at the start of the year.
• It is a quiet week for central banks, with no major decisions scheduled this week and the FOMC in its blackout period before the March 21 meeting. We expect some commentary from some BoE and ECB officials.

FX

• The US dollar index closed down for a sixth straight session on Friday as expectations around the Fed starting monetary easing earlier than in other major economies heightened. It ended Friday at 102.712, down 1.1% w/w.
• GBP hit a seven-month high against the USD in trading on Friday as the BoE is expected to trail the Fed. Sterling closed at 1.2858, meaning a 1.6% w/w gain. EUR added 0.9% to w/w to close at 1.0939.
• The Japanese yen bucked the trend as chatter about the BoJ hiking rates rose over the past week. It gained in four straight sessions against the greenback to end Friday at 147.06, up 2.1%.

Equities

• In Asia, the Hang Seng ended Friday down 1.0% w/w despite a 0.8% gain on the day, but on the mainland the Shanghai Composite eked out a 0.1% w/w gain. The Nikkei closed down 0.6% over the week but is still up 18.6% ytd. In Europe, the composite STOXX 600 closed 1.1% higher on the week, although the UK’s FTSE lost 0.3%.
• It was a mixed week for US equity indices, with losses at the start of the week largely recouped over Wednesday and Thursday, before losses on Friday drove them back into the red. The S&P 500, the Dow Jones, and the NASDAQ ended Friday down 0.3%, 0.9%, and 1.2% respectively.
• Locally, the DFM ended Friday down 1.7% w/w, while the ADX closed down 0.3%. In Saudi Arabia, the Tadawul closed down 0.4% w/w on Thursday. Egypt’s EGX 30 added 8.1% over the week.

Commodities

• Global oil prices have remained rangebound for much of the year as they have been buffeted by war risk premia on one hand and a weaker demand growth outlook on the other (China’s CNPC said this week that oil demand in China had entered a new low growth phase). This lack of clear direction was especially the case this week, which was the least volatile since 2021.
• Brent futures closed at USD 82.08/b on Friday, down 1.8% w/w, while WTI fell 2.5% to close at USD 78.01/b.