Markets
US eco data released during the Easter break prolonged the momentum of Thursday’s very strong US manufacturing ISM (64.7 from 60.8). Friday’s US payrolls showed net job creation of 916k in March, the highest level since August and easily beating 660k consensus. There’s still a 8.4mn job gap to fill before reaching early 2020 levels. More vaccines and fewer business restrictions are now helping a broader recovery of the US labour market. Details showed a 280k surge in jobs in the leisure and hospitality sector, which suffered the biggest blow during the Covid-crisis. The unemployment rate declined from 6.2% to 6%, the lowest level since March and even with a small uptick in labour force participation rate (61.5%). The latter is still near the softest since 1976, ignoring the past couple of months. A participation rate near pre-pandemic levels would imply of a US unemployment rate just below 9%. The US nonmanufacturing ISM, released yesterday, jumped from 55.3 to 63.7 in March. The spike handsomely beat consensus (59) with the ISM setting an all-time high. Details showed the employment component rising from 52.7 to 57.2. Current business activity (59.4) and new orders (67.2) showed similar increases with the US preparing for supercharged growth levels as the economy awakens with huge US fiscal stimulus working as multiplier. Supply chain disruptions remain the biggest issue as shown by rising supplier deliveries (61) and by prices paid (74).
The stellar US eco data somewhat surprisingly failed to inspire additional reflationary bets. US yields (compared to Thursday’s close) added 0.6 bps (2-yr) to 3 bps (10-yr) with the belly of the curve underperforming the wings. The (trade-weighted) dollar fell over that same period towards 92.60, with EUR/USD regaining the 1.18 barrier and closing in on first (minor) resistance at 1.1836. Admittedly, we remain cautious in interpreting these moves given special (thin) trading conditions. Sterling outperformed other majors with EUR/GBP slowly slipping below the 0.85 big figure as the UK started gradually rewinding lockdown restrictions. The one market pocket which did enjoy the eco data and Easter period was the (US) stock market. Main US indices gained 1.13% (Dow) to 1.67% (Nasdaq) yesterday. Today’s eco calendar is fairly thin with only US JOLTS job openings and an update of the IMF’s World Economic Outlook. The Chinese Caixin services PMI (March) already beat consensus this morning (54.3 from 51.5). Asian stock markets are trading mixed with especially Japan underperforming. USD/JPY fell back to 110 during yesterday’s genuine dollar weakness. Weak market correlations of late make it hard to make firm calls on day-to-day market moves especially in absence of external (eco numbers, speeches,…) drivers. For now, the upward trends in long term yields and the dollar remain intact despite recent small corrections.
News Headlines
At the March 22 meeting of the PBOC, banks were told to curb loan growth for the rest of the year after surging in the first two months of the year to 4.9tn yuan, 16% more than the same period last year. In 2020, banks advanced a total of 19.6tn yuan of new loans. The comments came after some high-ranking Chinese officials already warned for bubble risks, especially in the financial and real estate sector.
Oil prices recoup some of yesterday’s steep losses today. The decline was driven by an ongoing third wave of the pandemic that is hurting European demand as well as US and Iran talking about the 2015 nuclear deal. For the deal to revive, Iran wants current sanctions, a.o. on its oil exports, abandoned. Brent crude fell from $65/b to $62 before touching on $63 again this morning.
US Treasury Secretary Yellen called on other countries to join the US in setting a global minimum corporate tax to ensure a “more level playing field in the taxation of multinational corporations”. Raising the US corporate tax rate is one of the funding measures for the $2.25tn infrastructure bill proposal introduced last week and highlights the return to economic multilateralism after the Trump era
