| USA Nonfarm payrolls rose 303K in March, a lot more than the median economist forecast calling for a +214K print. Adding to the news, the prior’s month data was revised upward a cumulative 22K. Employment in the goods sector rose 42K (the most in 14 months) on a steep gain in construction (+39K). Manufacturing payrolls stayed unchanged. Jobs in services-producing industries, meanwhile, expanded 190K, with notable increases for health/social assistance (+81K), leisure/hospitality (+49K), retail (+18K) and other services (+16K). The temporary help services category saw payrolls cool 1K. In total, 190K jobs were created in the private sector, compared with 71K in the public sector, the latter split between federal (+9K) and state/local (+62K) administrations. Average hourly earnings rose 4.1% y/y in March, down from 4.3% the prior month and in line with consensus expectations. Month on month, earnings progressed 0.3% following an upwardly revised +0.2% result the prior month Released at the same time, the household survey painted a similarly upbeat picture of the situation prevailing in the labour market, with a reported 498K increase in employment. This gain, combined with a two-tick in-crease in the participation rate (to 62.7%) and a 469K increase in the labour force, allowed the unemployment rate to edge down from 3.9% to 3.8%. Full-time employment fell 6K, while the ranks of part-timers surged 691K. The increase in average weekly hours worked (from 34.3 to 34.4) was another positive as it allowed aggregate hours (a good proxy for GDP growth) to recover further after having been negatively impacted by adverse weather conditions in January. Total hours are tracking a decent 1.0% increase in the first quarter as a whole The trade deficit widened in February from $67.6 billion to $68.9 billion thanks entirely to services, seeing how the goods trade deficit narrowed from $91.7 billion to $91.4 billion. Goods imports increased $4.7 billion (to $268.1 billion), led by consumer goods (+$1.6 billion) and food/beverages (+$1.3 billion). Goods exports, however, grew by $5.0 billion (to $176.7 billion) on increases for industrial supplies (+$2.9 billion), food/beverages (+$1.7 billion), and capital goods (+$1.5 billion). Country by country, the U.S. goods deficit widened with Mexico (from $12.7 billion to $15.3 billion) and Vietnam (from $8.5 billion to $9.6 billion) but narrowed with China (from $22.9 billion to $21.9 billion) and Japan (from $7.3 billion to $6.2 billion) The services surplus, meanwhile, shrank from $24.1 billion in January to $22.5 billion in February, as exports grew by $0.8 billion (to $86.4 billion) while imports swelled $2.4 billion (to $63.8 billion). Travel exports continued to recover but remained slightly below their pre-pandemic level. On the flip side, travel imports, which serve as a proxy for the number of Americans travelling abroad, increased by $1.3 billion in the month Construction spending fell 0.3% in February after pulling back 0.2% the prior month. The consensus forecast was for a gain of 0.7%. The monthly decline reflected a decrease in the public sec-tor (-1.2%). The private sector spending was flat (+0.0%), as a 0.7% increase for residential projects was offset by a 0.9% drop for non-residential structures The ISM Manufacturing PMI rose from 47.8 in February to 50.3 in March, well above the consensus target of 48.3. The index thus breached the 50-point mark separating expansion from con-traction for the first time in 17 months, ending the longest sub-50 streak in more than two decades The Job Openings and Labor Turnover Survey (JOLTS) showed that the number of positions waiting to be filled increased slightly from 8,748K in January (initially estimated at 8,863K) to 8,756K in February. With the number of people looking for a job remaining steady, the ratio of job offers to unemployed persons stayed at 1.4, its lowest point since September 2021 but still well above this indicator’s pre-pandemic level ( 0-1.25) On aggregate, the labor market remains healthy and has yet to show any meaningful signs of cooling. Over the past three months, job gains have averaged 276k – slightly stronger than the 251k averaged in 2023. With job openings still elevated, and increased immigration alleviating some of the pressure on labor supply, job growth could conceivably run in the 150k-200k range for the rest of the year. This would go a long way in rebalancing the labor market, without necessitating any meaningful increase in the unemployment rate Fed Chair Jerome Powell helped allay fears that recent bumpy inflation data will alter the trajectory of expected rate cuts. In comments Wednesday, Powell said it is too soon to say whether recent, firmer inflation data is more than a blip. The data do not materially change the overall picture, he said, adding that he doesn’t think inflation is reversing higher. The Fed chair added that based on the current outlook, rate cuts are likely to be appropriate this year and that decisions will be made meeting to meeting. On Thursday afternoon, hawkish comments from Federal Reserve Bank of Minneapolis President Neel Kashkari caused a stir in markets when he questioned the need for the rate cuts given the economy’s resilience and raised the possibility of no cuts this year. Those remarks, along with a spike in oil prices on rising Mideast tensions, helped spark a bout of risk aversion, sending the S&P 500 Index down about 2% from Thursday’s intraday highs. Friday morning, after the employment report, Dallas Fed President Lorie Logan said it is “much too soon” to think about cutting rates The large-cap indexes pulled back from record highs, as U.S. Treasury yields increased in response to signs that the manufacturing sector might finally be gaining traction. The market’s performance also narrowed again, with growth stocks faring better than value shares and large-caps falling less than small-caps. Energy stocks outperformed as oil prices reached their highest level since October on worries over rising tensions between Israel and Iran and a decision by major exporters to maintain production limits despite tight markets. Some late strength in Microsoft also boosted the technology sector In terms of data release, the NFIB Small Business Optimism print is out on Tuesday. The National Federation of Independent Businesses (NFIB) Small Business Optimism Index fell to the lowest reading since May 2023 in February. If you ask small businesses what their #1 problem is, they’ll tell you it’s price pressures and finding quality labor. Even as those problems have abated, businesses still face tough conditions. Both inflation and the labor market are moderating, but prices remain elevated and labor isn’t exactly in abundant supply. When considering these pressures, it’s not surprising small businesses have continued to cite decreased optimism in the wake of the pandemic CPI is out on Wednesday. The March consumer price data demand increased attention after consumer inflation surprised to the upside at the start of the year. At a high level, the slow retreat in inflation was on full display in March. The headline CPI will likely rise by 0.4% for a second straight month, pushing the year-ago rate to 3.5%. Part of that gain will come from higher gasoline prices during the month, and when excluding food and energy, core CPI is expected to advance by 0.3%. It was likely more of the same in terms of the drivers of core inflation. UK Nationwide’s House Price Index for March shows a small monthly drop in UK house prices of 0.2%. This was slightly worse than expected: markets were projecting there to be a slight improvement m-o-m of 0.3%. UK house prices, according to the Nationwide metric that is based on mortgage approval data, are down by just over 3% in nominal terms compared to their September 2022 peak. The real terms decrease is, of course, far greater given the recent inflationary spike, although it is notable that prices now appear to be stabilizing or even seeing signs of moderate growth The Bank of England’s money and credit release this morning would suggest the UK housing market is becoming healthier. Mortgage approvals jumped from 56,100 in January to 60,400 in February, exceeding market expectations of just 56,500. Mortgage approvals are now just ~6,000 shy of their average in the five to six years in the run-up to the pandemic February’s figure for mortgage approvals, a leading indicator, were very robust, and the Halifax and Nationwide House Prices Indexes have seen a mild upward trend in house price growth over the past few months. This would suggest that UK house prices have “bottomed out”. A combination of supply constraints, increased demand and moderating mortgage rates (compared to previous peaks in mid-2023) all seem to be combining to putting a floor on UK house prices. As real wage growth is expected to continue to be positive in 2024 and consumer confidence should see modest improvements, it is expected that the recent trend of growing average house prices should continue this year. EU Euro area inflation eased slightly more than expected in March. Headline inflation eased to 2.4 percent in February from 2.6 percent in February and core inflation eased to 2.9 percent from 3.1 percent. Bloomberg survey expectations were 2.5 percent for headline and 3.0 percent for core. Lower food inflation was counteracted by a less negative contribution from energy prices. The fall in core inflation was supported by a continued fall in goods inflation at 1.1 percent, down from 1.6 percent in February, while service price inflation remains elevated and unchanged at 4.0 percent. Monthly figures are volatile and should be interpreted with caution, in particular the seasonally adjusted data. This said, the March outcome was positive news in terms of core inflation momentum, where the trend in recent months has been unconvincing Headline inflation in the major economies was below Bloomberg survey expectations. In France the headline figure eased to 2.4 percent from 3.1 percent in February, beating expectations of a fall to 2.8 percent. German headline inflation eased to 2.3 percent in March from 2.7 percent in February, just below expectations at 2.4 percent. Headline inflation in Italy increased by 0.5 percentage points but remained low at 1.3 percent, and below market expectations at 1.5 percent. The headline figure in Spain increased from 2.9 percent in February to 3.2 percent in March, just below expectations at 3.3 percent. Measures of core inflation in Germany, Spain and Italy continued to decline on an annual basis The minutes from the European Central Bank’s (ECB’s) March meeting showed that policymakers were increasingly confident that inflation was slowing to the target level in a timely manner. The majority felt that the case for rate reductions was strengthening but that it would be prudent to wait for key economic data that are scheduled to come out after the ECB’s April meeting In local currency terms, the pan-European STOXX Europe 600 Index fell 1.19% during the holiday-shortened week, snapping 10 straight weeks of gains. Hawkish comments from some U.S. Federal Reserve policymakers and higher crude oil prices cast doubt on the timing of interest rate cuts. France’s CAC 40 Index dropped 1.76%, Germany’s DAX weakened 1.72%, and Italy’s FTSE MIB lost 2.13%. CHINA The value of new home sales by the country’s top 100 developers slumped 49% in March from the prior-year period, easing from the 60% drop in February, according to the China Real Estate Information Corp. Sales rose 93% from the previous month, but remained weak compared with the monthly average of the third and fourth quarters of last year. China’s tumbling property sales remain a drag on the key sector for its economy and have stoked a liquidity crisis among some of its biggest property developers as they struggle to meet loan repayments the People’s Bank of China said in its first-quarter policy report that it will intensify existing measures to encourage demand. The central bank pledged to maintain ample social financing and money supply to support Beijing’s annual growth target of 5% as it grapples with weak consumer confidence The official manufacturing PMI rose to an above-consensus 50.8 in March, up from 49.1 in February, due to a rebound in production and exports and marking the first expansion since September last year. The nonmanufacturing PMI grew to a better-than-expected 53.0 from 51.4 in February. Separately, the private Caixin/S&P Global survey of manufacturing activity edged up to 52.7 in March, in line with expectations and marking its 15th month of expansion Chinese equities advanced in a holiday-shortened week, as data added to evidence that the economy could be gaining traction. The Shanghai Composite Index gained 0.92%, while the blue-chip CSI 300 added 0.86%. In Hong Kong, the benchmark Hang Seng Index rose 1.10%, according to FactSet. Markets in mainland China were closed on Thursday and Friday in observance of the Qingming Festival, also known as Tomb Sweeping Day, when Chinese people honor their ancestors by cleaning and placing offerings on their tombs. Hong Kong markets were closed on Thursday but reopened on Friday. |
| Sources: T. Rowe Price, MFS Investments, Wells Fargo, Handelsbanken Capital Markets, TD Economics, National Bank of Canada, M. Cassar Derjavets. |
