Sunset Market Commentary

Markets

Today’s countdown towards the March payrolls fortunately wasn’t in vain. Job gains printed at a stellar 303k, surging past the 214k consensus, the 232k whisper number and the 290k high-end of analyst estimates. The two-month revision brought an additional 22k jobs. Gains were broad-based but sectors showing the biggest rise include health & social assistance (81k), leisure & hospitality (49k) as well as construction (39k). The government added another 71k. The household survey recently diverged strongly from the afore-mentioned establishment survey job growth – an anomaly some say is related to immigration which isn’t (enough) accounted for in the Census Bureau population estimate. This time around, though, the former caught up with a whopping 498k, confronting those who saw the recent weak readings as early warnings. That same questionnaire also showed the unemployment rate easing back to 3.8% from 3.9%, despite a bigger-than-expected increase in the participation rate from 62.5% to 62.7%. Wage growth picked up as expected from 0.1% m/m to 0.3% to be 4.1% higher compared to March of last year. It’s a strong labour market on all accounts and in any case not the kind that validates quicker rate cuts by the Fed. Powell suggested this could happen if the labour market were to deteriorate suddenly and sharply. Markets react accordingly with US yields spiking 7-8.4 bps higher across the spectrum before paring gains a bit. The short (e.g. 2-y) and the long (e.g. 10-y) end revisit the resistance/YtD (closing) levels they turned away from in recent days, a.o. on a softer services ISM. We don’t expect a break higher just yet ahead of next week’s US CPIs but it looks as if the tiniest upside surprise might just do the trick. Given the low comparison base, especially for the headline number (0.1% m/m in March 2023), inflation is bound to reaccelerate in y/y terms (expected at 3.5%). After today’s data, markets have become less certain on the three rate cuts the dot plot has pencilled in (88% vs near-100% yesterday).

The US labour market report woke the dollar from it’s intraday lull. EUR/USD fell with 1.08 fighting for survival ahead of the weekend. The trade-weighted index bounces to 104.68 but remains south of this week’s high around the 105 big figure. The JPY erased all earlier (and to be honest unconvincing) gains following BoJ governor Ueda’s hint on a second rate hike in 2024H2. USD/JPY trades back into familiar territory at 151.65. Sterling hasn’t drawn any headlines recently but EUR/GBP has been creeping stealth-like higher all week. The pair is currently attacking recent closing highs around 0.8578.

News & Views

After seven months of decline, the UN’s Food and Agriculture Organization’s (FAO) food price index ticked up in March (+1.1% M/M but still -7.7% Y/Y), mostly driven by higher world vegetable oil prices (+8% M/M). Vegetable oil prices reached a one-year high reflecting higher price quotations across palm (seasonally lower outputs and firm demand in Southeast Asia), soy (robust demand from biofuel sector), sunflower and rapeseed oils. Higher crude oil prices also contributed. Dairy prices rose by 2.9% M/M, marking the sixth consecutive monthly increase. Meat prices increased by 1.7%. Cereal prices are down 2.6% M/M and 20% Y/Y. Ample wheat supply and cancelled purchases from China put downward pressure together with favorable crop forecasts. Sugar prices fell 5.4% M/M, mainly because of an upward revision to the 2023/24 sugar production forecast in India and the improved pace of harvest in Thailand. Persisting concerns over the crop in Brazil limit the price decline.

• March Canadian payrolls disappointed. Net job growth fell by 2.2k, while consensus expected an increase by 25k. Details showed marginal job shedding in both full time and part time jobs. The unemployment rate rose from 5.8% to 6.1% with an unchanged participation rate of 65.3%. There were fewer people employed in accommodation and food services (-27k), wholesale and retail trade (-23k) and professional, scientific and technical services (-20k). Employment increased in four industries, led by health care and social assistance (+40k). Total hours worked in March were virtually unchanged but up 0.7% Y/Y. Average hourly wages among employees rose 5.1% Y/Y. USD/CAD rises to a new YTD high (1.3630) on a combination of USD strength and CAD weakness.