Powell Did Not Shake Markets

In focus today

Today offers a light schedule in terms of tier-1 data releases.

Most global markets that were off yesterday due to the International Labour Day are back today.

In the US, we will keep an eye out for the preliminary Q1 productivity data. Surprisingly strong productivity growth contributed to the US economy’s stellar performance in 2023, but its persistence remains uncertain. We also receive the initial jobless claims figure.

Swedish PMIs for April are released at 9:30 CET. In the last release, Manufacturing PMI reached expansionary ground once again at 50.0 for the first time since June 2022. New orders increased to 50.9, thus adding up to an increase of 2.6 in the aggregated Manufacturing PMI for Q1 2024, mainly driven by new orders in the export sector. We anticipate that the positive trend continues in today’s release.

Economic and market news

What happened overnight

In Japan, authorities appeared to have intervened in FX markets, as the yen took a sharp upwards turn against the dollar (USDJPY) from around 157 to 153 in less than 45 minutes. The suspected intervention came after the dollar had been weakening some on the back of the Fed’s decision to leave rates unchanged and Fed chairman Powell’s subsequent remarks (read more below). As of this morning the USDJPY is trading around 156.

Asian markets have reacted to yesterday’s Fed decision by trading a bit mixed with Shanghai and South Korea slightly down, and Australia, Japan, and Hong Kong in the Green.

US futures for major indices are all trading up as of this morning with Nasdaq futures in front having gained around 0.6%. S&P500 and Dow Jones futures are not far behind trading about 0.5% and 0.4% up respectively.

What happened yesterday

In the US, the Fed left interest rates unchanged as was widely expected amongst market participants. In its press release, the FOMC announced that from June onwards it will reduce its monthly quantitative tightening (QT) programme for US Treasuries to USD25bn from the previous USD60bn a month. It left its cap on reducing its holdings of Mortgage-Backed Securities unchanged at USD35bn a month.

At the press conference, Powell provided few new clues on the policy outlook but emphasized that the Fed continues to see its policy having a restrictive effect on demand. As such he made it clear the Fed remains in a good place with its current policy. However, the Fed needs more confidence on inflation returning to target before deciding on a rate cut. Yet, he said it is unlikely that the next move would be a hike.

Markets initially reacted in a dovish manner sending both the dollar and long yields down. However, this reaction mostly faded later, and both the dollar and 10Y UST yields ended little changed from pre-meeting levels. Read more in Research US – Fed review – Maintaining easing bias, 2 May.

The ISM manufacturing figure for April fell more than expected coming in at 49.2 vs. consensus expectations of 50.0. The month prior it stood at 50.3, and the drop was driven especially by new orders which dropped to 49.1 from 51.4 the month prior.

The ADP jobs report showed slightly stronger jobs growth in the private sector than what was expected posting 192k additional jobs for April, and an upwards revision to the March figure of 24k. Tomorrow we will be looking out for the jobs report where we expect 200k additional non-farm jobs created in April.

The JOLTs job opening numbers pointed to fewer job openings than expected, as such lending support to the narrative of a cooling labour market. There was a total of 8.488mn job openings in March, and the ratio of job openings to unemployed jobseekers declined to 1.32, the lowest seen since the initial Covid-shock hit the economy in 2020. The February figure saw a very slight upward revision of around 50k.

In the Quarterly Refinancing Announcement (QRA) the US Treasury said issuance is going to be concentrated in the 2Y-5Y segment as well as in T-Bills. They also announced that auction sizes would remain unchanged “at least for the next several quarters”. Guidance is thus overall unchanged from January, just as expected.

In Europe, most markets were out due to International Labour Day, however those that remained opened traded mostly in the red with for instance the FTSE100 dropping 0.28%. Market movements.