US jobs growth surprised on the upside in April

US nonfarm payroll data for April surprised on the upside, rising by 253K, well above consensus expectations for a 185K increase. Growth in jobs was relatively broad-based with the biggest gains in healthcare, professional and business services, leisure and hospitality, and suggests that the labour market is yet to feel any significant effects from the recent banking sector turmoil. The strength seen in the April payroll data contrasts against some other labour market statistics, such as job openings and initial jobless claims that had appeared to be showing some softening. It is however worth noting that payrolls data for the previous two months have been revised down by a cumulative 149K, leaving the 3-month rolling average at its lowest level since January 2021. Average hourly earnings rose by 0.5% m/m (4.4% y/y) in April, the most in just under a year, while the unemployment rate ticked down slightly to 3.4% to reach a multi-decade low.  

German factory orders collapsed in March, falling 10.7% m/m. The March outturn was materially weaker than consensus expectations for a fall of 2.3% m/m, and represents the largest fall in orders since the start of the Covid-19 pandemic. The weakness in orders was particularly acute in the car and car parts industries.  Weakness was also seen in French industrial production which fell 1.1% m/m in March, below expectations for a 0.3% fall and weaker than the 1.4% m/m growth seen in February.

Saudi Arabia recorded real GDP growth of 3.9% y/y in Q1 according to preliminary data from the General Authority for Statistics, down from 5.5% the previous quarter. The growth was driven by non-oil activity  which expanded 5.8% y/y, while oil GDP grew 1.3%. Government services activities expanded 4.9%. On a seasonally adjusted quarterly basis, GDP contracted 1.3%, driven by a 4.8% decline in oil activity. Non-oil activity was up 1.5% q/q. Our 2023 growth forecast is 2.1%, predicated on the expectation of a 2.0% contraction in hydrocarbon GDP, and 4.8% growth in non-oil.

Saudi Arabia’s budget recorded a deficit of -SAR 2.9bn in Q1 2023, narrower than the -SAR 45.7bn deficit recorded in Q4 2022 but a sharp deterioration from the sizeable surplus in Q1 2022.  Total revenue rose 1.1% y/y as higher tax income offset the impact of lower oil prices on the budget. However, total spending grew almost 29% y/y, with strong growth in investment spending (75.1% y/y) as well as general spending on goods & services and social benefits. With the kingdom announcing voluntary oil production cuts of 500k b/d from this month, we expect the budget to be close to balanced this year after recording a surplus in 2022.   

Today’s Economic Data and Events

• 10:00 GE Industrial production, March

Fixed Income

• For much of the past week US Treasuries pushed higher as the turmoil in regional banks in the US and a potentially final hike from the FOMC helped to bring yields lower. But as ever in this economy, the resilience of the US labour market proved hard to ignore and a stronger than expected April non-farm payrolls report pushed yields higher on Friday. The 2yr UST rose by 12bps to 3.9139%, limiting the drop on the week to 9bps. Yields on the 10yr rose about 6bps to 3.437% for a weekly rise of a bit more than 1bps.
• Markets priced out the degree of rate cuts following the release of the April labour market data but still have a cut tentatively priced in for as early as July. Inflation data due this week will be the next major print to assess where rates and market yields go from here.
• European bonds ended Friday weaker with bund yields up 10bps to 2.288%, tracking the move in Treasuries and digesting more of the ECB’s hawkish poise earlier in the week. French 10yr yields added 9bps. The Bank of England will be the highlight for central banks this week with a 25bps hike targeted by markets.
• Fitch lowered their rating on Egypt to ‘B’ and placed the rating on a negative outlook. Fitch cited Egypt’s external financing requirements and delays in moving to a fully flexible exchange rate as behind the downgrade.

FX

• A boost in risk sentiment helped to push the dollar lower at the end of the week, although marginally so. EURUSD ended the week at 1.1019, up less than 0.1% and the pair sank for the week as a whole. GBPUSD rallied more convincingly, up by 0.5% on Friday to 1.2636 ahead of a bank holiday weekend. USDJPY moved higher, up by 0.4% to 134.80, as investors moved toward riskier positions.
• Commodity currencies had a strong few days last week with USDCAD dropping by 1.2% on Friday to 1.3375, its lowest level since mid-April. AUDUSD rose by 0.8% on Friday to settle at 0.6749 while NZDUSD added 0.2% to 0.6292.

Equities

• Equity markets enjoyed a bounce on Friday with unease around the banking sector easing at the close of the week. In the US, this enabled the NASDAQ to eke out a w/w gain of 0.1%, but it was insufficient to put the S&P 500 or the Dow Jones back in positive territory over the week, with the two indices closing down 0.8% and 1.2% w/w respectively.
• In Europe, Friday’s gains were enough to boost the DAX to a w/w gain of 1.0%, but it was an exception as the CAC and the FTSE 100 both ended the week 0.7% lower.
• Locally, the DFM dropped 0.2% while the ADX added 0.3%.

Commodities

• Oil priced brought their sell off to an end on Friday with decent gains in all major benchmarks. Brent rose by 3.9% to USD 75.30/b though was still down about 5.3% for the week, while WTI added more than 4% to USD 71.34/b but not enough to arrest a more than 7% decline last week.
• Investors cut long positions in both Brent and WTI markets last week by a substantial amount. Total net length in speculative positions fell by more than 105k contracts last week, pacing on the drops in positioning around the sell off in oil in March in response to the collapse of SVB.
• Meanwhile the US drilling rig count continues to fade. E&P firms took a net 3 oil rigs out of service with shale basins losing 9 rigs.