April 11, 2023

Markets Today – False Claims

There were no major surprises in Friday’s US NFP report, unlike the prior days weekly jobless claims data.

Todays podcast

  • No major surprises in Friday’s US payrolls report…
  •  …unlike Thursday’s jobless claims data , with big (upwards) benchmark revisions
  • US bond yields smartly higher Friday, up again Monday. May Fed hike odds 70% from 50%
  • New BoJ Governor Ueda sounding like a chip off the old (Kuroda) block. JPY weaker
  • US CPI (Wed) and US bank earnings the coming (short) week’s highlights
  • AU NAB Business survey, WPAC Consumer Confidence today. Labour market Thursday

CA: Unemployment rate (%), Mar: 5.0% from 5.0% vs. 5.1 exp.
US: Jobless claims (k), wk to 1 Apr: 228 vs. 200 exp.
US: Change in nonfarm payrolls (k), Mar: 236 vs. 230 exp.
US: Unemployment rate (%), Mar: 3.5% from 3.6% vs. 3.6 exp.
US: Average hourly earnings (m/m%), Mar: 0.3 vs. 0.3 exp.
US: Average hourly earnings (y/y%), Mar: 4.2 from 4.6% vs. 4.3 exp.

In a truncated US bond market session on Friday, US Treasury yields jumped 15bps at 2-years and 8.5bps at 10 years, the US dollar rose modestly and the AUD was unchanged, still mired below 0.67. This was after the March US payrolls report revealed a 236k rise in non-farm payrolls with +17k of net revisions (230k expected). The unemployment rate fell 0.1% to 3.5% (3.6% expected) and average hourly earnings rose by an as-expected 0.3% to be 4.2% up on a year ago down from 4.6% and 4.3% expected.

Despite this evidence that wages growth is moving quite decisively in the ‘right’ direction from an inflation perspective US money market rates moved to ascribe a 70% probability to the Fed lifting the Funds rate by 0.25% to 5.0-5.25% on May 3, up from close to 50% pre-release. Monday’s US session has seen bond yields edge higher (2-3bps) with the 2-year note back at 4.0% while equities have closed little changed in NY. The USD has gains have extended Friday’s gains, particularly versus the JPY (USD/JPY up over 1%). AUD/USD is now back below 0.6650.

Arguably more revealing that the payrolls report, last Thursday night’s weekly jobless claims showed large-scale upward revisions following the annual benchmarking process of seasonal adjustment factors. Claims were 228k in the week ended 1 April from a prior week’s 246k that was originally reported as 198k. The revised data now shows claims above 220k since the beginning of March. Meanwhile the latest Challenger Gray & Christmas planned layoffs data recorded 89,703 in March, showing the February fall to be a blip on a rising trend that date back to last October (before which layoffs were running at sub-30k a month).

US economists we closely reckon Friday’s non-farm payrolls gain of 236k was the last 200k rise we’ll see in the cycle and could be negative within a couple of months. In this respect the NFIB’ (small business) hiring intentions reading also out late last week was a near 3-year now, while the ‘quit rate’ within the earlier JOLTS report is giving a strong signals that average earnings growth is heading down to a rate that the Fed will before too long deem consistent with its 2% inflation target.

Other data out since we broke up for Easter included a strong Canada jobs report, with employment up 34.7k against 5k expected and the unemployment rate steady at 5.0% rather than the consensus for a rise to 5.1%.  Markets nevertheless continue to ascribe zero change to the Bank of Canada  resuming raising rates following its pause when it meets this week. In Japan, yesterday, Japan’s consumer confidence readings were positive, Consumer confidence is up to 33.9 in March from 31.1 and the Eco Watchers ‘Current’ reading up to 53.3 from 52.0 and ‘Outlook’ to 54.1 from 50.8. But Friday’s hard Household and Consumer spending data told a different story, with consumer spending growth down to 2.6% y/y from 6.1% (albeit for February).

Incoming BoJ governor Ueda, speaking at a press conference Monday, says that its appropriate to continue with yield curve control, that the yield curve is smoother than before and that ‘big’ rate increases aren’t possible in Japan for now. He does note though that this year’s wage talks have been ‘good so far’ and that it’s entirely possible underlying inflation will reach the 2% BoJ goal. His remarks would appear to rule out any policy change at this month’s meeting, but we still contend the June and if not June then July meetings are ‘live’ for a change in YCC policy.

Bond markets have shown more volatility than equities since last Thursday’s close, with US 2-year yield up some 18bps (and 23bps since lst Wednesday’s close) and 10s up 11bps to 3.42%. US equities have closed out Monday’s US session with the indices narrowly mixed (S&P500 +0.1%, NASDAQ flat and the Dow +0.3%).  In FX, the USD is stronger across the board since Thursday, with losses of +/- 0.5% for NZD, AUD, GBP, EUR and CHF, while USD/JPY is up 1.35% thanks to the combination of higher US Treasury yields and the above Ueda comments.

Finally, New York Fed President John Williams has just been speaking and says it’s important the Fed is able to take steps to lower prices (implicitly endorsing another hike in May) and that he’s not worried about market rates expectations (for cuts later this year) and that he doesn’t think rates hikes are behind the issues at failed banks. The Fed is though monitoring credit conditions in the wake of the turmoil and says it’s not clear how much credit conditions will tighten.

Coming Up

  • In the four-day week ahead, local focus as we head towards a highly uncertain outcome to the May 2 RBA meeting and before the April 26 Q1 CPI report, will be on the March employment report (Thursday) and NAB business survey (today) and too consumer confidence. NAB projects a 30k employment gain (consensus 20k) and unchanged 3.5% unemployment rate (market 3.6%).
  • Internationally, Wednesday’s US March CPI report is the data highlight. While the headline rate is seen dropping to 5.1% from 6.0% thanks in large part to sharp yr/yr energy price fall, the focus is on the core ex-food and energy reading, seen lifting by 0.4% on the month for 5.6% yr/yr up from 5.5%. doubtless leading to a chorus of Fed official claiming inflation is still way too high and therefore cementing expectations for a further Fed rate hike on May 3. PPI on Thursday will also be of interest.
  • FOMC Minutes are on Thursday, while the US earnings seasons kicks off with particularly keen interest in the banking sector. This starts with First Republic Bank tonight then Wells Fargo, Citigroup and JP Morgan on Friday.
  • The Bank of Canada meets Wednesday, universally expected to hold rates at 4.5%, notwithstanding last Thursday night’s bumper labour market report.
  • Outside of the NAB Business survey, passing interest today in what should be still very benign China CPI (1.0% y/y, unchanged on February) and PPI (-2.5% down from -1.4%). The US NFIB (small business) survey is tonight (expected 89.8 from 90.9) though the ‘hiring intention’ index was released last week and at 15 was the weakest in almost 3 years

Market Prices


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