- The US added 431k new jobs in March as the non-farm payrolls report for the month showed the labour market remaining in robust health ahead of further tightening from the Federal Reserve. The headline unemployment rate fell to 3.6% while the February print was also revised up strongly to 750k jobs. The labour force participation rate also moved higher, a sign of confidence among workers in the US that the economy will be able to absorb more. Wage growth also accelerated in March, rising by 0.4% m/m and up 5.6% from year ago levels, an improvement on the slowdown in wage growth recorded in February. On top of decades-high inflation, there was nothing in the March jobs report to keep the Fed at bay from hiking when it meets again in May.
- CPI inflation in the Eurozone rose by 7.5% y/y in March, a considerable acceleration from the 5.9% increase recorded in February. The elevated price gains came across all members of the Eurozone with Germany’s inflation rising by 7.6% in data released earlier in the week. Energy is the principal driver of the price growth as both oil products and natural gas prices have pushed higher as a result of the Russian war in Ukraine. With the inflation outlook unlikely to improve, the prospect of the European Central Bank hiking earlier than expected has increased: as of April 1 markets were pricing in an initial hike as early as the July ECB meeting.
- The US ISM manufacturing index fell to 57.1 for March, down from 58.6 a month earlier. While a tick downward, the index still represents relatively robust growth in the US. New orders fell substantially, however, as firms grow more cautious on the demand outlook amid high inflation. Input prices also surged higher thanks to elevated commodity costs raising prices across the board.
- The UAE and Israel have signed a ‘comprehensive economic partnership agreement’ to improve economic links between the two countries. The deal will seek to lower or end tariffs between the two countries and help to support job growth and bilateral investment. A more formal trade deal is likely in the offing.
Today’s Economic Data and Events
- 09:00 IN Manufacturing PMI March
- 11:00 TU CPI y/y Mar: forecast 62%
- 18:00 US Factory orders Feb: forecast -0.6%
- 18:00 US Durable goods orders Feb: forecast -2.2%
Fixed Income
- The solid March jobs report helped US Treasuries start the new month and quarter on a soft footing. Yields on the 2yr UST jumped up 12bps at the end of the week to close at 2.4564% while the 10yr added just 4bps to settle at 2.3822%. That helped the 2s10s spread to close inverted at more than 7bps and furthering market anticipation that the Fed will proceed with aggressive tightening at upcoming meetings.
- Outside of the US, bond markets were also weaker although changes were relatively muted. Bunds traded around a 5bps range, settling at 0.5526% on the 10yr while similar maturity gilt yields closed at 1.607%, down marginally.
- Emerging market bonds were generally weaker as investors still remain circumspect about risk. Yields on South African 10yr bonds closed down slightly, however. Indian 10yr bonds weakened with the yield up around 6bps at 6.843%.
- S&P raised Oman’s sovereign rating to ‘BB-‘ with a stable outlook while the rating agency cut Turkey’s local currency rating to ‘B+’ with a negative outlook.
FX
- Currency markets started the new quarter with more dollar strength with the broad DXY index up 0.33% to 98.632. EURUSD slipped back by 0.2% to 1.1043 as the solid jobs report in the US showed the apparent relative strength of the US economy compared with peers. USDJPY resumed its upward pull after a few days of decline, rising by 0.67% on Friday to close at 122.52. GBPUSD fell almost 0.2% to 1.3114.
- In commodity currencies performance was mixed with USDCAD moving against the loonie. The pair closed up 0.14% at 1.2522. AUDUSD added almost 0.2% to close at 0.7496 while NZDUSD closed down by 0.3% at 0.6927.
Equities
- Equity markets closed Friday up decently even as the strong jobs report opened the way for more aggressive Fed tightening. The Dow closed up 0.4% while the S&P added 0.3% and the tech-oriented NASDAQ gained 0.3%. In Europe, equities were also higher on the close with the FTSE rallying 0.3% and both the French and Indian markets strengthening.
Commodities
- Oil prices fell sharply last week in response to the US announcing a major release of oil from its strategic petroleum reserve. The rest of the IEA member nations also agreed to release strategic reserves to help dampen down currently high oil prices. While the SPR releases may serve as a short term help in softening prices, they do risk emptying stockpiles ahead of a highly uncertain supply outlook.
- Brent futures settled the week down more than 13% at USD 104.39/b while WTI fell 12.8% to USD 99.27/b. The size of the moves highlight the enormous amount of volatility in the market at the moment but there is no certainty that a downward move can be sustained. As the front end of the curve collapsed, time spreads narrowed considerably. The front month spread in Brent closed at USD 1.57/b, down from USD 3.20/b a day earlier while the same spread in WTI closed at USD 1.37/b.
Click here to Download Full article
