Chief Investment Strategist
Summary: Friday’s nonfarm payroll was a reminder to the markets that Fed’s inflation fight isn’t over and Fed futures are now once again pricing in a higher chance of a 25bps rate hike in May. Equities closed higher last week on a tech-led rally and futures are mixed at the start of the week with thin liquidity underpinning as many markets are still away on Easter holiday. Oil prices still building on gains from last week after OPEC cut although higher yields have brought Gold back lower to $2000. US CPI report will be key this week along with FOMC minutes and banking sector earnings. Geopolitics also a focus with China’s military drills around Taiwan.
US equity markets closed higher last week after some initial concerns on economic growth pushing stocks lower at the start of the week. The S&P 500 rose 0.36% on Thursday ahead of the Good Friday holiday while NASDAQ 100 rose 0.74%. The rally was driven by strong gains in big tech players such as Google-parent Alphabet and Microsoft. No further reports of stress in the banking sector underpinned, while investors were also relieved by some initial signs of cooling in the US labor market which re-affirmed bets that the Fed can pause at the May meeting. However, the nonfarm payroll data was still firm on Friday, and that once again boosted the case for a 25bps rate hike in May close to 70%.
Equity markets are yet to react to NFP, as markets were closed on Friday. S&P futures opened in the green in Asia but were last seen reversing the gains. Treasury yields jumped higher on Friday in the half-session, with the 2-year yield jumping higher back close to 4%, on expectations of a Fed rate hike in May picking up pace, and that was seen weighing on NASDAQ futures in early Asian trade. Geopolitics will also be on watch with China’s military drills around Taiwan and a probe into Micron Technology.
Chinese stocks closed higher on Friday, with the CSI 300 Index closing up 0.65%. HK market was closed on Friday but also closed higher on Thursday by 0.3% after Caixin services PMI for March in China rose to 57.8 in March from 55 in February, suggesting a strong economic momentum.
Gains in CSI were led by healthcare, telecom and financials, while energy and consumer staples lagged. Chinese property stocks also had a positive week amid hopes of a recovery in the sector. Meanwhile, tech also surged as Chinese chipmakers such as SMIC are seeing domestic investor interest amid continued spat between US and China over the semiconductor market. China announced a probe into US chip maker Micron Technology, and that also underpinned more interest in domestic Chinese chip manufacturers. Geopolitical worries will remain on watch this week, along with IMF’s revised global growth forecast. Most importantly, focus will be on credit data in China to assess how supportive government policy measures are turning out to be.
The slowdown in the US jobs report on Friday was not as much as the markets started to expect going into the publication, especially after jobless claims rose above 200k and job openings fell last week. The cooling of the US labor market was not as profound in the NFP report, which took the USD slightly higher in the thin Good Friday markets, while the JPY weakened. USDJPY rose to highs of 132.38 as 2-year Treasury yields got in close sights of 4% with expectations of a 25bps rate hike from the Fed in may picking up pace. The new BOJ chief Kazuo Ueda’s first policy meeting this month will be a key focus for yen traders. GBPUSD also reversed from 1.25 but still supported at 1.24, while EURUSD found support at 1.09.
Crude oil prices continue to digest the surprise OPEC production cut announcement from last week despite economic growth concerns also coming into focus. US economic data will form a key input this week for energy markets, as it sheds further light on the inflation vs. recession rhetoric and whether expectations of a sharp turn in Fed policy could be materialized. OPEC and IEA are also due to release their monthly outlooks this week, which will be key for further inputs on the demand and supply outlook. Given that the OPEC decision was partly intended to drive out short sellers from the crude oil market, oil prices may be better able to reflect market fundamentals from here on. WTI prices pushed above $81 in early Asian trading hours before reversing slightly lower, and Brent is still above $85.
Gold prices surged to highs of $2030 last week amid concerns on economic growth, but a still-firm nonfarm payroll report on Friday has been a reminder that inflation risks are still on the table and will be a key focus for Fed policy. Fed futures are now once again pricing in a higher chance of a 25bps rate hike in May from the Fed, and that has weighed on the shine of the yellow metal which is back close to the $2000-mark in early Asian trading hours on Monday. Focus remains on US CPI due this week on Wednesday and the FOMC minutes to further guide the path of interest rates from here.
A pretty mixed set of jobs data was out into the Easter holiday weekend. New jobless claims came in higher than expected at 228k last week (vs. 200k expected), and the previous week’s print was also revised higher to 246k from 198k previously. Annual revisions by the Department of Labor underpinned, showing that claims had been much higher (and rising) over the past few months than initially reported, indicative of a labour market not quite as tight as initially thought. Meanwhile, March Challenger Layoffs rose by 89.7k, accelerating from February's pace of 77.8k, taking the overall Q1 job cuts to the highest level since 2020.
Still, the nonfarm payroll data remained strong. Headline job change was higher than expected at 236k and last month’s was also revised up to 326k. However, this was the lowest monthly increase in 27 months, and private payrolls missed expectations. Unemployment rate still dropped to 3.5% from 3.6% in February. Wage data rose M/M to 0.3% from 0.2% but the Y/Y trend continued to show a softening as it came at 4.2% from 4.6% previously.
While the overall data remains mixed, it is not soft enough for the Fed to pause rate hikes. Rate hike odds for May went soaring to 70% after the NFP release from just about 50% earlier.
China held a second day of military drills around Taiwan, with multiple exercises involving aircraft and ships, after the island’s president, Tsai Ing-wen, returned from a visit to the US. These actions appear to be a repeat of those in August after Pelosi’s visit to Taiwan. Beijing also stepped up some sanctions on Taiwan’s envoy to the US as a symbolic gesture and more measures will remain on watch today. Meanwhile, China has also taken a step in the chip war with the launch of a probe on Micron Technology.
Tesla is once again cutting prices for its vehicles in the U.S., in a sign that the company continues to look to spur more demand after disappointing the market with its Q1 2023 deliveries number just days ago. Meanwhile, prices for Lithium Carbonate continue to slide to fresh lows, potentially giving room to Tesla to cut prices with minimal impact on its margins. Reports suggested that price of Model S and Model X vehicles was cut by $5,000 to $84,990 and $94,990 and cut its Model 3 and Model Y vehicle by $1,000 and $2,000, lowering their base prices to $41,990 and $49,990. Tesla reports Q1 earnings on April 19 and deliveries and margin compression will be key to watch.
Meanwhile, Tesla announced a new battery factory in Shanghai, increasing investment in China at a time of brewing tensions between Beijing and Washington. Tesla will manufacture its Megapack large-scale energy- storage unit in the new facility, which adds to its factory for electric vehicles in Shanghai. A company statement confirmed that construction is scheduled to begin in the third quarter of this year and the plant will commence production in the second quarter of 2024.
The International Monetary Fund (IMF) warned that the global economy is entering a period of slow growth, with the growth rate expected to be below 3% this year and to remain around 3% in the next five years. The IMF said that the global economic growth slowed sharply last year due to the impact of the Covid-19 pandemic and the conflict between Russia and Ukraine, and this situation will continue until 2023 and may continue for five years. IMF Managing Director Kristalina Georgieva urged additional support from wealthier countries to support the low-income countries.
Levi Strauss reported Q1 earnings with a revenue beat but missed on margins due to the squeeze from higher transportation costs as well as increased promotions used to offload excess inventory that piled up last year. The company reaffirmed its annual revenue and EPS guidance for the full-year, with net revenues expected to be in a range of $6.3bn-$6.4bn and adjusted earnings of $1.30-$1.40 a share.
For a global look at markets – tune into our Podcast.
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Head of Fixed Income Strategy
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Head of Commodity Strategy
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Head of Fixed Income Strategy
Quarterly Outlook
Head of Commodity Strategy