Markets
The Fed turned a bit more upbeat on the economy. Its statement recognizes the strengthening of economic activity, even in the hardest-hit sectors, and employment, supported by progress on vaccinations and both monetary and fiscal policy. The Fed also took note of rising inflation but says it largely reflects transitory factors related to supply bottlenecks and base effects. Risks to the outlook remain but are no longer considerable. In the press conference, we saw a one-way dovish Powell highlighting what still needs to be done rather than the progress already made. He repeated they are still a long way from their goals, suggesting that substantial further progress, the cue to start tapering, is not there yet. He later literally said it is not time yet to even talk about it, referring to payrolls still more than 8 million down from pre-pandemic levels. The US yield curve bull flattened as a result, which the belly of the curve outperforming. Yields fell 1.5 bps (2y) to 3 bps (5y) over 1.2 bps (10y). Powell isn’t worried by the recent strong increase in inflation expectations as they only recovered from depressed levels. Similarly, financial stability isn’t a problem either although some things inequities do reflect some froth. That final comment triggered a sell-off that sent WS in the red (up to -0.5% for DJI). The dollar fell on lost interest support. This stood in contrast with the euro profiting from long European yields showing eagerness to rise. Germany’s 10y yield tested the February recovery high (-0.2%). EUR/USD took out resistance at 1.2103 and closed north of 1.21(26) for the first time since the end of February. The trade-weighted DXY (90.6) ditched parallel support at 90.82. USD/JPY retreated from a short adventure above 109 to 108.6. EUR/GBP went nowhere near the 0.87 pivots.
Asian stock markets largely trade in positive territory in the wake of the Fed and strong US tech earnings. Japan is closed for a holiday. FX markets trade muted with minor losses for the yen and gains for sterling. The dollar stabilizes. Core bonds hold a downward bias though on lower volumes.
Finally some action on the data front today with US jobless claims and Q1 growth figures. Median estimates amount to 6.6% q/q annualized US growth. There might be some downside risks coming from net exports while the actual reopening of the economy only started by the end of Q1/early April. As such, the data might be considered outdated. Core PCE is seen rising to 2.4% for Q1, close to the 2.5% many analysts believe the Fed wants to see. However, coming after such a dovish policy meeting yesterday, it is unlikely to trigger a significant market reaction. Going forward though, strong US data (eg. payrolls next week) will continuously build market pressure. This morning’s easing of USTs already is in any case an interesting observation to make. EC economic confidence, as well as German HICP, is due today ahead of the European reading tomorrow. We’re keen to see whether US yields will further correct lower post-Fed today. 1.59% in the US10y has to hold for the improved technical picture to stay. The same goes for EUR/USD and 1.21.
News Headlines
The Brazilian economy added 181 140 registered jobs in March, the highest figure for this month since 2010. Despite the ongoing pandemic, the services sector created 95 553 jobs. The industry added 42 150 jobs. This resulted in first-quarter net job growth of 837 074, the most for the Jan-March quarter since the data series started in 1992. According to data from the central bank, the total number of formally registered workers rose to 40.2 million in March. Brazil still has an estimated near 40 million undocumented workers without formal employment registration.
Chip shortages remain an important topic as corporations are reporting Q1 earnings. Tech companies like Apple and Qualcomm see strong demand for their products hampered by chip shortages. The impact of shortages was even more prominent in Ford’s assessment of production. The company indicated that the ongoing ship shortage would cost it about $2.5 billion and about 1.1 million units of lost production in 2021. The Ford CEO said ‘the semiconductor shortage and the impact on production will get worse before it gets better. In fact, we believe our second quarter will be the trough for this year’. There are indications that shortages are leading to higher prices for end buyers, adding to the debate to what extent shortages and supply bottlenecks will add to upward price pressures.
