All About March US Payrolls Today

Markets

Wednesday’s failed test to sustainably pierce through technical resistance levels (YTD highs) across the US yield curve met with some rebound action during US trading hours yesterday. Upwardly revised EMU PMI’s (composite >50 for first time since May 2023), Minutes of the ECB’s March policy meeting (first rate cut clearly coming into view), weekly jobless claims (still near historically low levels) or rising oil prices (Brent crude > $91/b) had no direct influence on trading. Fed governors clearly lack the ECB’s confidence to ready a June rate cut. Richmond Fed Barkin said that the Fed has time to gain more clarity before lowering rates as he’s looking for the slowdown in inflation to sustain and to broaden. Rightly so, he’s apprehensive on the bumpy road ahead. Next week’s March CPI figures are a point in case. The low comparison base (0.1% M/M in March 2023) suggests that headline inflation will rise again to levels around/above 3.5% Y/Y. This base effect issue will repeat itself in the months of May, June and July irrelevant of the impact of current price pressures (sticky services, lagged impact of rents, energy prices,…), entailing a risk that inflation will settle again around/above 4% Y/Y during summer months. Interestingly, Barkin admitted that he would be open to a target inflation range though he deems it difficult to suddenly back off 2% right now. A higher inflation risk premium because of (implicit) higher inflation targets by central banks is one of the drivers backing our call for substantially higher long-term interest rates over the medium term. Chicago Fed Goolsbee, close ally to Fed chair Powell, focuses more on growth and the labour market. There doesn’t seem to be broad-based overheating of demand while he thinks it’s worth staying attuned to the deterioration in the jobs market. Recent data shouldn’t knock the Fed off the inflation path towards 2% while he stresses developments in housing inflation as the most valuable near-term indicator. Cleveland Fed Mester wants a couple of more months data to assess inflation, but she’s unlikely to get those as she leaves the Fed in June. Finally, Minneapolis Fed Kashkari raised the possibility that the Fed won’t cut policy rates this year if inflation stalls. We stick to the view that the a first 25 bps rate cut will come in September at the earliest. It’s all about March US payrolls today with consensus expecting another decent job growth of 214k in combination with a slightly lower unemployment rate (3.8% from 3.9) and firm wage pressure (0.3% M/M & 4.1% Y/Y). The rather high consensus bar and this week’s failed test push US yields through the roof suggests that those levels will be able to hold into this week’s close. The dollar proved to be vulnerable when the long end of the curve underperformed (rising inflation expectations?!), but found (safe haven) relief after yesterday’s late swoon in US stock markets (up to -1.5%). We expect EUR/USD to gradually return to the low 1.07 area.

News & Views

The National Bank of Poland left its policy rate unchanged yesterday at 5.75%. The NBP sees a gradual recovery developing in Q1 24 after 1% growth in Q4 23. The unemployment rate remains low and annual wage growth continues to rise. The NBP took notice of the CPI declining to 3.9% Y/Y in January, while the further decline in February and March (1.9% Y/Y) was not retained in the NBP assessment (after cut-off date Feb 15). In its new forecast (based on a stable policy rate), the NBP downwardly revised its inflation projections (2024: 2.8%-4.3%, 2025 2.2%-5% and 2026 1.5%-4.3%) but turned more positive on growth (2024 2.7%-4.3%; 2025 3.2%-3.5% and 2026 2%-4.5%). The NBP sticks with its asymmetric upward risk to 2024 inflation. Disinflation is expected to continue in H1, but a rise in VAT and higher energy prices might significantly raise inflation in H2. Public sector wages also suggest upward demand pressures going forward. In this context, the NBP judges that policy is conductive to meeting the target. It still doesn’t give any guidance on (the timing of) further easing. The zloty trades in line with fundamentals and contributes to the disinflation process. EUR/PLN yesterday held stable just below the 4.3 handle.

The Reserve Bank of India left the policy rate this morning unchanged at 6.5% for the seventh consecutive meeting. According to RBI governor Das, strong growth gives the central bank room to keep the focus on inflation as the last mile of disinflation is assessed to be challenging. The RBI sees 7% growth in current fiscal year. Retail inflation is seen staying at 4.5% compared to the RBI target of 4% while food prices remain a risk. The Indian rupee this morning gains modestly against the dollar but at USD/INR 83.41 remains within reach of the all-time (INR) low.