Markets
Monday: manufacturing ISM. Tuesday: JOLTS job openings. Wednesday: ADP employment change & non-manufacturing ISM. Today: weekly jobless claims. Four in a row when it comes to disappointing US eco data. Four in a row as well when it comes to a (positive) reaction from US Treasuries. Even on today’s mostly ignored weekly jobless claims series. Claims fell from a significantly upwardly revised 246k last week to 228k (vs 200k expected). Continuing claims rose to 1823k, the highest level since mid-December 2021. US Treasuries tested this week’s highs, but claims lack weight to really push through existing technical boundaries. The same happened yesterday after ADP & services ISM though the starting point of Treasuries’ push higher was obviously lower. Tomorrow’s payrolls risk delivering a fifth consecutive disappointment and might have the force to break technical levels, especially ahead of the long Easter weekend and with US CPI inflation lining up next Wednesday. US yields currently lose 3.8 bps (5-yr) to 2.5 bps (30-yr). The US 2-yr yield tested the March lows between 3.55% and 3.71% but avoided again a drop (3.76%). The US 5-yr yield tested the 3.3%/3.23% support (currently 3.34%) and the US 10-yr yield is testing 3.29%/3.28% support. German Bund yields are today unnerved with volatility in the US with yield changes varying between +0.8 bps (2-yr) and -1.4 bps (10-yr). The European eco calendar only contained second tier figures like February German production data (positive surprise at 2% M/M), but we retain comments from ECB chief economist Lane. He told Cyprus News Agency that “if the baseline we developed before the banking stress holds up, it will be appropriate to have a further policy rate increase in May.” The European economy is performing relatively well this year with core inflation being sticky. European money markets after this week’s correction attach a 90% probability to a 25 bps rate hike at the May 4 policy meeting with a final 25 bps hike discounted somewhere over summer. European stock markets outperform main US indices. The latter since yesterday no longer profit from the lower yield environment but start worrying about (US) recession risks. In the same vein, the EUR/USD-rally ran out of steam above 1.09. The IMF today warned that its global growth outlook for the next 5 years is the weakest in more than 30 years’ time. For 2023, global GDP will likely expand by less than 3%. A more detailed spring outlook will be released next week (Apr 11). Despite the bleak growth outlook, high inflation means that central banks must continue to raise interest rates, as long as financial stability pressures remain limited after recent banking industry upheaval in the US and Switzerland, IMF chief Georgieva said.
News Headlines
The Bank of England’s monthly Decision Maker Panel showed that businesses in March expected their output prices (B2B and B2C) to increase by 5.3% on average in the year ahead. That’s down 0.1 ppt from the previous month. The 3-month average also fell by 0.1 ppt do 5.5% compared to the 6.6% peak seen in September. CPI expectations also eased by 0.1 ppt to 5.8% for the year ahead but rose from 3.4% to 3.5% for the three-year ahead period. Wages are seen rising by 5.6% in one year’s time (+0.1 ppt) compared to realized annual wage growth of 6.5%. Regarding monetary policy, CFO’s anticipate one more 25 bps rate hike. Overall business uncertainty continued to decline with 47% of the firms reporting the level as high or very high compared to 53% in February.
Canadian employment growth again surpassed expectations. The net change amounted to 34.7k in March vs the 7.5k consensus estimate. Job creation was about evenly distributed between full timers (+18.8k) and part timers (15.9k). The unemployment rate stabilized at 5%, the lowest on record barring the summer months in 2022 (4.9%). It defied expectations for a small uptick to 5.1%, in part thanks due the participation rate easing a tad to 65.6%. Wages grew 5.2%. That’s down from 5.4% last month but still even above the 4-5% range policymakers said was inconsistent with getting inflation back to target. The report offers little support for the Canadian dollar though. USD/CAD even trades a little higher for the day around 1.347. Money markets don’t assume a tighter-than-anticipated labour market report will get the Bank of Canada to hike again next week after pausing the cycle in March at 4.5%. A first rate cut is instead priced in for September.
