Markets
It was a stretched run-up to the ADP job report release today during which core bonds lost some ground. US and German yields added a few basis points only to completely reverse course after the ADP report undershot even the lowest end of expectations. The US economy created 145k jobs in March compared to the 210k median estimate. The 19k upward revision to February is nothing more than putting a plaster on a wooden leg. The goods-producing sector added 70k with the manufacturing sector (-30k) acting as a heavy counterweight. Service providers created 75k jobs thanks to the trade, transport & utilities sector and leisure & hospitality. Financial activities (-51k) and business services (-46k) lost jobs. ADP chief economist Richardson said that “Our March payroll data is one of several signals that the economy is slowing” and that “Employers are pulling back from a year of strong hiring and pay growth, after a three-month plateau, is inching down.” It’s the third whammy to core bond yields this week after Monday’s manufacturing ISM and yesterday’s JOLTS. A sub-consensus US services ISM, published after wrapping up this report, has the potential to deliver a fourth one. The short end of the US yield curve outperforms with a double digit intraday move. The 2y yield eases 8.1 bps and is testing the closing lows set in the wake of the mid-March turmoil. The 10y yield is closing in on the intraday lows seen in that same period (around 3.30%) by shedding about 3.2 bps. One of the Fed’s most outspoken hawks, Cleveland’s Mester, saying that it’s too soon to say whether the Fed will raise rates in May obviously doesn’t help. German yields ease 2.8-7.0 bps across the curve with the front outperforming. Interestingly enough, it no longer helps equities this time around. The Euro Stoxx 50 loses 0.3%. Wall Street opens mixed.
The dollar limits losses given the size of the yield correction. EUR/USD left intraday lows around 1.0935 ahead of the ADP release to currently change hands at 1.096. The YtD high at 1.1033 for now isn’t being tested but markets are probably on the lookout for the services ISM. DXY for a similar reason is holding steady at 101.51, near but above the YtD lows. The Japanese yen outperforms. USD/JPY eases half a big figure from 131.71 to 131.03. EUR/JPY drops back below 144 (143.43). Sterling loses a few ticks in what’s mostly a risk-off trade. EUR/GBP used support from the upward sloping trendline connecting the higher lows since August 2022 to trade a little higher at 0.877. BoE’s Tenreyro warned for the impact of the recent turmoil on credit conditions and said that the central bank will take those effects into account when it sets policy. Tenreyro is the most dovish MPC member and her remarks didn’t come as a surprise.
News & Views
According to the Czech statistical office, real retail sales in February decreased further by 0.4% M/M resulting in a 6.4% Y/Y decrease. Y/Y-sales are already in negative territory since May last year. However, the details showed a potential easing in the decline. The decline in food sales still accelerated to 1.8% M/M but sales of non-food goods increased by 0.2% while sales of automotive fuels added 1.5% compared to January. Online retail decreased for the 14th month. The CNB last week acknowledged that domestic demand is weakening. However a tight labour market and expansive fiscal policy still cause the CNB to push back against early rate cut bets and even to leave open the option of a rate hike. At EUR/CZK 23.44, the krona is holding near the early March multi-year peak.
The Ministry of finance of Bulgaria in its spring economic forecast expects GDP growth to slow from 3.4% last year to 1.8% this year. A gradual improvement to 3.2% is expected for 2024 and 2025. Employment growth is seen slowing from 1.3% last year to 0.4% this year. This should result in an unemployment rate of 4.1% this year, falling back to 3.9% in 2024 and 3.8% in 2025 and 2026. The inflation slowdown since end 2022 is expected to continue. HICP is seen easing from 13.0% last year to 8.7% this year and 3.8% in 2024. Regarding politics, the stalemate after last Sunday’s parliamentary elections persists. Former PM Boyko Borissov’ Gerb party won with a thin lead, but no majority. Borissov indicated he will talk with all other parties. He tries to form a government with parties that support the euro entry and subscribe Ukraine’s efforts to resist Russia’s invasion in Ukraine. However, the block of Kiril Petkov, which was a close second in the elections, reiterated he is not prepared to cooperate with Borissov.
