US Non-Farm Payroll employment grew 175k in April, well below expectation of 243k. It’s also way lower than the average gain of 242k in the prior 12 months.
Unemployment rate rose from 3.8% to 3.9%, above expectation of 3.8%. Labor force participation rate was unchanged at 62.7%.
Average hourly earnings rose 0.2% mom, 3.9% yoy, below expectation of 0.3% mom, 4.0% yoy.
Eurozone unemployment rate was unchanged at 6.5% in March, matched expectations. EU unemployment rate fell from 6.1% to 6.0%.
Eurostat estimates that 13.258m persons in the EU, of whom 11.087m in the euro area, were unemployed in March 2024.
UK PMI Services was finalized at 55.0 in April, marking a significant improvement from March’s 53.1 and representing the highest level since May 2023. This level of activity, the highest since May 2023, signals robust growth in the sector, with activity and new work rising at the fastest rates in 11 months. Despite these positive developments, input cost inflation remains high, reaching its peak since August 2023, though the rate of staff hiring continues to be subdued.
Tim Moore, Economics Director at S&P Global Market Intelligence, highlighted that the latest survey results suggest the UK economy is growing at a quarterly rate of 0.4%. He noted, “Prices charged inflation across the service sector eased to a three-year low in April, suggesting that the pass-through of higher costs has started to wane.” This slowdown in price increases comes despite a sharp rise in business expenses driven by strong wage inflation, which continues to push up operating costs.
US Non-Farm Payroll report stands as the focal point for global financial markets, with significant implications for Fed’s monetary policy easing decisions ahead. Throughout this year, the labor market has continually surprised economists by maintaining robust growth, contrary to predictions of a slowdown. This resilience has placed the Fed in a predicament, as policymakers remain reluctant to initiating interest rate cuts without more definitive signs that inflation is under control.
This month’s employment data, while not sufficient on its own to prompt immediate policy easing, is crucial for establishing a trend that could influence Fed’s confidence levels. For Fed to consider loosening its policy stance later in the year, key metrics including headline job growth, unemployment rate, and wage growth must start collectively pointing towards a cooling job market.
Market expectations for today’s NFP include job growth of 243k and unemployment rate holding steady at 3.8%, with average hourly earnings anticipated to increase by 0.3% mom. Related data saw 192k ADP private job growth. ISM Manufacturing Employment rose slightly from 47.4 to 48.6. There was a marginal decrease in the 4-week moving average of initial unemployment claims to from 214k to 210k. All suggest the prospect for an NFP figure that could exceed expectations.
In terms of market reactions, 10-year yield is worth some attention. Break of 4.568 support will argue that a short term top is already formed at 4.730. Deeper pullback would be seen back to 55 D EMA (now at 4.414) or even further to 38.2% retracement of 3.780 to 4.730 at 4.367. If realized, this decline in 10-year yield would be a drag to Dollar, in particular in USD/JPY.
ECB Chief Economist Philip Lane reiterated the central bank’s cautious stance on interest rate policy in a speech overnight, underscoring that rate decisions will remain “data-dependent” and determined on a “meeting-by-meeting” basis. While ECB is open to rate cuts if inflation converges to target in sustainable manner, Lane emphasized that the bank is “not pre-committing to a particular rate path.”
Lane elaborated on the factors that will guide ECB’s decisions on the “speed and scale” of rate cuts. Firstly, he noted that the effects of previous interest rate hikes are “still unfolding”, with their full impact on inflation expected to manifest gradually. While the impact on GDP peaked in 2023, the “bulk of impact on inflation is comparatively backloaded” with substantial pass-through effects yet to occur.
Additionally, the evolution of inflation expectations remains a critical consideration for the ECB’s policy calibration. Lane also pointed out the dual risks associated with the timing of policy adjustments: easing too soon or too quickly could undermine stabilization efforts, while maintaining overly restrictive rates could hinder economic recovery.
US initial jobless claims was unchanged at 208k in the week ending April 27, lower than expectation of 212k. Four-week moving average of initial claims fell -3.5k to 210k.
Continuing claims was unchanged at 1774k in the week ending April 20. Four-week moving average of continuing claims fell -4k to 1779k.
Eurozone’s manufacturing sector remains entrenched in recession as April’s PMI figures highlight ongoing challenges and disparities within the region. The overall Manufacturing PMI for the Eurozone was finalized at 45.7, a slight decrease from March’s 46.1.
Among the member states, Greece led with a PMI of 55.2, though it marked a three-month low for the country. Spain and the Netherlands exhibited positive trends, with Spain reaching a 22-month high at 52.2 and the Netherlands achieving a 20-month high at 51.3. Conversely, major economies like Germany, France, and Italy continued to struggle. Germany’s PMI slightly improved to a two-month high of 42.5, and France’s was a three-month low at 45.3, despite a slight uptick from the flash estimate.
Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, noted the manufacturing sector is prolonging its drawn-out recession into April.” He highlighted the significant downturn in new orders, which he described as “a rapid decline unmatched in speed over the past four months and devoid of international support.” De la Rubia also pointed out the concerning trends in the capital goods sector, which is usually a bellwether for broader industrial health but has been “hit particularly hard” in the current cycle.
Spain stands out as an anomaly within the Eurozone, continuing to demonstrate economic resilience with sustained growth in its manufacturing sector. This divergence is notable, especially against the backdrop of more subdued economic performances in other major Eurozone economies like Germany, France, and Italy, which have failed to gain similar momentum.
Swiss CPI rose 0.3% mom in April, above expectation of 0.2% mom. CPI core (excluding fresh and seasonal products, energy and fuel) rose 0.4% mom. Domestic products prices rose 0.1% mom. Import products prices rose 1.1% mom.
Over the 12 month period, CPI accelerated from 1.0% yoy to 1.4% yoy, above expectation of 1.1% yoy. CPI core increased from 1.0% yoy to 1.2% yoy. Domestic products price growth rises from 1.7% yoy to 2.0% yoy. Imported products prices contraction lessened from -1.3% yoy to -0.4% yoy.
BoC Governor Tiff Macklem, at a Senate committee testimony, indicated that Canada is edging closer to conditions that would allow for easing monetary policy. “The short answer is we are getting closer,” he affirmed.
Inflation in Canada has moderated effectively, remaining under 3% since January and aligning with the central bank’s forecasts. This stabilization is expected to persist through the first half of 2024, with key core measures of consumer prices showing a consistent downward trend.
“We are seeing what we need to see, but we need to see it for longer to be confident that progress toward price stability will be sustained,” Macklem explained.
Furthermore, Macklem addressed the impact of fiscal policy on the economic outlook, noting that recent governmental fiscal plans are unlikely to significantly alter the Bank’s projections for the economy or inflation.
US markets expressed a sign of relief overnight followed as Fed Chair Jerome Powell’s less hawkish than feared stance at the post-FOMC press conference. Major stock indexes closed mixed while treasury yields dipped with Dollar.
Most importantly, Powell characterized the current interest rate level as “sufficiently restrictive,” and indicated that it is “unlikely that the next rate move will be a hike.” Instead, Powell delineated the future monetary policy path as a decision between “cutting” and “not cutting” interest rates, depending on economic data.
This stance comes in the wake of stronger-than-expected inflation data since the beginning of the year, leading Powell to acknowledge that it would “take longer than previously expected” for Fed to be confident that inflation is on a steady decline toward the 2% target. policymakers to become comfortable that inflation will resume the decline towards 2%.”
“If we did have a path where inflation proves more persistent than expected, and where the labor market remains strong but inflation is moving sideways and we’re not gaining greater confidence, well, that would be a case in which it could be appropriate to hold off on rate cuts,” Powell said. “There are paths to not cutting and there are paths to cutting. It’s really going to depend on the data.”
More on FOMC:
10-year yield closed down -0.0910 at 4.595 in reaction to FOMC. Technically, another rise could still be seen as long as 4.568 support holds. But even in this case, TNX should continue to lose upside momentum ahead of 4.997 high. Meanwhile, break of 4.568 will indicate that it’s at least in a near term pullback towards 55 D EMA (now at 4.408).
Fed keeps interest rate unchanged at 5.25-5.50% as widely expected.. In the accompanying statement. Fed noted that there has been a ” lack of further progress” recently on lowering inflation towards target.
Meanwhile, FOMC emphasized that “The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent.”
Full statement below:
Recent indicators suggest that economic activity has continued to expand at a solid pace. Job gains have remained strong, and the unemployment rate has remained low. Inflation has eased over the past year but remains elevated. In recent months, there has been a lack of further progress toward the Committee’s 2 percent inflation objective.
The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. The Committee judges that the risks to achieving its employment and inflation goals have moved toward better balance over the past year. The economic outlook is uncertain, and the Committee remains highly attentive to inflation risks.
In support of its goals, the Committee decided to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent. In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage‑backed securities. Beginning in June, the Committee will slow the pace of decline of its securities holdings by reducing the monthly redemption cap on Treasury securities from $60 billion to $25 billion. The Committee will maintain the monthly redemption cap on agency debt and agency mortgage‑backed securities at $35 billion and will reinvest any principal payments in excess of this cap into Treasury securities. The Committee is strongly committed to returning inflation to its 2 percent objective.
In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.
Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Thomas I. Barkin; Michael S. Barr; Raphael W. Bostic; Michelle W. Bowman; Lisa D. Cook; Mary C. Daly; Philip N. Jefferson; Adriana D. Kugler; Loretta J. Mester; and Christopher J. Waller.
US ISM Manufacturing PMI fell from 50.3 to 49.2 in April, below expectation of 50.1, and back in contraction. New orders fell from 51.4 to 49.1. Production fell from 54.6 to 51.3. Employment rose from 47.4 to 48.6. Prices surged from 55.8 to 60.9, highest reading since June 2022.
ISM said: “The past relationship between the Manufacturing PMI® and the overall economy indicates that the April reading (49.2 percent) corresponds to a change of plus-1.9 percent in real gross domestic product (GDP) on an annualized basis.”
US ADP private employment grew 192k in April, above expectation of 180k. By sector, goods-producing jobs rose 47k, service-providing jobs rose 145k. By establishment size, small companies added 38k jobs, medium companies added 62k, large companies added 98k.
Year-over-year pay gains for job-stayers were little changed in April at 5%. Pay growth for job- changers fell from 10.1% in March to 9.3%.
“Hiring was broad-based in April,” said Nela Richardson, chief economist, ADP. “Only the information sector – telecommunications, media, and information technology – showed weakness, posting job losses and the smallest pace of pay gains since August 2021.”
UK PMI Manufacturing was finalized at 49.1 in April, down from March’s 50.3. This decline was also reflected in four key areas: output, new orders, employment, and stocks of purchases. Furthermore, input price inflation hit a 14-month high, exacerbating cost pressures for manufacturers.
Rob Dobson, Director at S&P Global Market Intelligence, highlighted the renewed downturn, attributing the challenges to weak market confidence, client destocking, and disruptions caused by the ongoing Red Sea crisis. These factors have notably hindered the sector’s ability to secure new work from key international markets including Europe, the US, and Asia.
The manufacturing downturn is prompting firms to exercise “cost caution,” leading to reduced employment levels, lower stock holdings, and cutbacks in purchasing activity. Dobson expressed concern over the implications for consumer price inflation, noting that the ongoing cost pressures within the manufacturing sector are complicating efforts to return inflation to target levels.
US stocks tumbled sharply overnight, concluding a turbulent April as traders anticipated a hawkish pivot from Fed Chair Jerome Powell in his upcoming post-FOMC meeting press conference today. DOW recorded -5% loss for the month, marking its worst monthly performance since September 2022. Similarly, S&P 500 and NASDAQ fell by -4.2% and -4.4%, respectively, ending their five-month streaks of gains.
Amidst this backdrop, Fed is widely expected to maintain federal funds rate at its current level of 5.25-5.50%. With no new economic projections or dot plot updates, all eyes are on Powell’s statement and subsequent press conference. Market speculation suggests Powell might confirm that a rate cut in June is unlikely and could adjust expectations to reflect fewer than three rate cuts for the year.
Powell’s comments will be crucial for investors, as any indication towards maintaining higher rates for longer, or even hinting at the possibility of a rate hike, could signal a more aggressive stance than previously anticipated. Currently, Fed fund futures reflect a 54% probability that rates will remain at the current level after the September meeting.
Technically, near term bias in DOW is kept on the downside after be rejected by 55 D EMA twice. Further decline is in favor through 37611.56 support. Nevertheless, fall from 39899.05 is currently seen as developing into a corrective pattern to rise from 32327.20 only. Hence, strong support would be seen from 38.2% retracement of 32327.20 to 39899.05 at 37000.42 to bring rebound. However, sustained break of 37000.42 will argue that larger scale correction could be underway.
Japan’s PMI Manufacturing was finalized at 49.6 in April, marking an increase from March’s 48.2 and reaching its highest level in eight months. While the index remains below the pivotal 50.0 mark, which distinguishes expansion from contraction, the latest data suggests that the sector is moving towards stabilization in the near term.
Paul Smith from S&P Global Market Intelligence noted that the April PMI “continued to paint a fairly subdued picture of the Japanese manufacturing sector,” but also pointed out that “another rise in the headline PMI points to a sector heading towards at least stabilization in the near-term.”
The report also highlighted concerns about inflation, with a broad-based increase in input prices contributing to heightened cost pressures for manufacturers. Notably, the strength of market demand is allowing firms to pass these increased costs onto consumers, with the extent of charge hikes reaching the steepest level in nearly a year.
RBNZ the decline in global inflation from previously elevated levels. At the same time, financial markets are currently anticipating lower policy rates over the next year.
However, “there remains a risk that new or persistent inflation pressures could mean global interest rates remain restrictive for longer, placing continued pressure on households, businesses and the financial system,” RBNZ warned in its semi-annual Financial Stability Report.
The report also observed that expectations for monetary policy easing have spurred rallies in equity markets across major economies. Yet, RBNZ cautioned that these gains could be vulnerable to a swift reversal.
“An abrupt reversal in sentiment arising from weaker-than-expected earnings or inflation remaining elevated could drag stock prices down, which would generate economic and financial risks from a market-driven tightening in financial conditions,” it warned.
New Zealand employment fell -0.2% qoq in Q1, much worse than expectation of 0.3% qoq growth. Unemployment rate rose from 4.0% to 4.3%, above expectation of 4.0%. Underutilization rate rose 0.5% to 11.2%. Employment rate fell -0.6% to 68.4%. Labor force participation rate fell -0.3% to 71.5%.
For wages, average ordinary time hourly earnings growth slowed from 6.9% yoy to 5.2% yoy. All sector unadjusted labor cost index slowed slightly from 4.3% yoy to 4.1% yoy.
“Although wage cost inflation eased and average hourly earnings growth started to slow this quarter, annual growth remained high for the two surveys,” business employment insights manager Sue Chapman said.
US Conference Board Consumer Confidence plunged from 103.1 to 97.0 in April, well below expectation of 104.0. Present Situation Index fell from 146.8 to 142.9. Expectations Index fell from 74.0 to 66.4.
“Confidence retreated further in April, reaching its lowest level since July 2022 as consumers became less positive about the current labor market situation, and more concerned about future business conditions, job availability, and income,” said Dana M. Peterson, Chief Economist at The Conference Board
“Despite April’s dip in the overall index, since mid-2022, optimism about the present situation continues to more than offset concerns about the future.”
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US ISM services falls to 49.4, back in contraction
US ISM Services PMI fell from 51.4 to 49.4 in April, well below expectation of 52.3. That’s the first contraction reading in after 15 months of growth. Business activity/production fell sharply from 57.4 to 50.9. New orders fell from 54.4 to 52.2. Employment tumbled from 48.5 to 45.9. Prices, however, jumped from 53.4 to 59.2.
ISM said: “The past relationship between the Services PMI® and the overall economy indicates that the Services PMI® for April (49.4 percent) corresponds to a 0.2-percent increase in real gross domestic product (GDP) on an annualized basis.”
Full ISM services release here.