US Non-Farm Payrolls miss expectations: Unpacking economic signals and market reactions.

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*Figures correct as of 6 May, 2024

US Non-Farm Payrolls???

This past Friday afternoon, the financial world turned its attention to the latest figures from the US Non-Farm Payrolls, a critical indicator of America’s economic vitality. Renowned as the most significant monthly economic update, the payroll numbers serve as a direct pulse check on the largest economy globally. With their notorious volatility, these numbers can swing dramatically, often blindsiding analysts and shaking up the markets with their unexpected highs or lows.

This unpredictability fuels market volatility as traders and investors respond to the real-time economic snapshot. Adding another layer of complexity, revisions to previous reports can sway perceptions towards optimism or caution. Coinciding with this are releases of the Unemployment Rate and Average Hourly Earnings—key metrics that directly impact inflation trends and stir significant market movements.

In April, anticipation was set for a robust addition of 240,000 jobs. Yet, the reality fell short, with only 175,000 jobs added—starkly underwhelming compared to the expected and previous March figures of 315,000. This shortfall sent ripples through the markets: precious metals prices spiked, the US dollar plummeted, and stock indices surged, clinging to their gains as the US markets opened.

Further deepening the economic narrative, the Unemployment Rate ticked up to 3.9% from the anticipated 3.8%, maintaining a sub-4% level for the twenty-seventh consecutive month—echoing a robustness not seen since the 1960s. However, Average Hourly Earnings suggested a cooling landscape, registering a 3.9% increase year-on-year, below the anticipated 4.0% and previous month’s 4.1%.

These mixed signals suggest a tempering in wage-driven inflation fears, yet they hint at a possible slowdown in the US economy. Despite these figures, the market is leaning away from expecting rate cuts from the Federal Reserve, especially following Chair Jerome Powell's recent hints at maintaining current rates. This sentiment has recalibrated expectations for a rate cut, now pushed to September from an earlier November prediction.

For those eager to dive deeper, check out the US Tech 100.

What we learnt from the Fed??

Last Wednesday, the US stock markets experienced a rollercoaster of emotions in response to the Federal Reserve's latest updates. Before the Federal Open Market Committee (FOMC) made their rate announcement, major indices lingered in the red. However, the atmosphere swiftly changed as the FOMC declared that interest rates would remain unchanged, aligning with expectations but still stirring the markets with a relatively mild statement.

Post-announcement, the indices initially surged, reacting to the news that the Fed would scale down its balance sheet reduction to $60 billion a month, a decrease from the previous $95 billion. This strategic slowdown aims to extend the Fed’s capability to trim down its balance sheet more sustainably, which has already shrunk to approximately $7.4 trillion from $9 trillion as of June 2022.

Amidst these financial maneuvers, Fed Chair Jerome Powell firmly stated that interest rate hikes were off the table for the foreseeable future. This decision comes on the back of a quarter filled with unexpectedly high inflation figures, despite the overall strength of the US economy and its labor market. The Fed’s cautious stance hinges on their confidence in steering inflation towards a steady decline to their 2% target.

While Powell’s commitment to maintaining current rates has provided some temporary calm, it poses a potential future challenge. Should inflation not retreat as hoped, Powell may face the tough choice of reversing his stance—a move likely to unsettle markets and political figures alike.

For further details on market responses and projections, explore the US 500.

UK’s FTSE 100 hits record high??

As stock markets worldwide embarked on an impressive rally since late October, the FTSE 100 has stood out, scaling new peaks. The start of 2024 saw major US and European indices hitting a succession of record highs. However, as March drew to a close, a tough April for equities followed. This shift was largely due to a recalibration of expectations regarding the US Federal Reserve's rate cuts, driven by persistently high inflation data.

Initially, the investment community had anticipated up to seven rate cuts of 25 basis points by year-end. But as first-quarter data rolled in, expectations were sharply adjusted to just a single rate cut by the festive season. Despite these broader market adjustments, the UK's FTSE 100 continued to thrive, consistently reaching record highs through April.

The resilience of the FTSE 100 is attributed to its composition—rich in dividend-paying value stocks and heavily weighted towards sectors like financials, consumer staples, industrials, and energy. Notably, its minimal exposure to the volatile technology sector has also played a significant role in its stability. With investors shifting away from tech and other growth stocks, the FTSE 100 is poised to maintain its robust performance, basking in a sustained investor favor.

For an in-depth look at the UK's leading index, explore the UK 100.

Looking ahead???

Crude Oil's Slippery Slope

Last week, the crude oil market remained under intense pressure. Both Brent and WTI faced a steady decline, with WTI breaking below the critical $80 per barrel support level. It's now hovering in a zone that has historically been a consolidation area, stretching down to $75.

There's uncertainty about where the floor might be set next. Brent's situation is slightly different; its front-month contract is at a key support level, marking a 50% retracement from the previous quarter's decline. With recent data revealing unexpected increases in US crude inventories, the supply seems ample, challenging the prices further amidst slower-than-anticipated rate cuts in the US which could have otherwise spurred economic activity.

Gold's Uncertain Journey

Gold has been a conundrum for traders recently, oscillating without clear direction. After a robust rally from mid-February to mid-April, gold has been unable to establish a stable footing. A period that started as a typical consolidation has shifted towards a more troubling decline for those bullish on gold.

The metal's price failed to reclaim the $2,300 mark following a sharp sell-off, reflecting a fragile stance. Silver too mirrors this volatility, testing significant support levels. Traders remain on edge, as the precious metals market exhibits both vulnerability and the potential for rapid recoveries.

The Yen's Dramatic Fluctuations

In the currency markets, the Japanese yen made headlines with its drastic fluctuations. Post the Bank of Japan's meeting, Governor Kazuo Ueda appeared unconcerned about the yen's decline unless it severely impacted the domestic economy. However, the USDJPY soared to a 34-year high of over 160.00, only to be corrected sharply below the 155.00 level, suggesting possible intervention.

The currency regained strength, highlighting a resilient move against the dollar, and closed the week stronger. The market is now watching to see if this represents a temporary relief or a longer-term trend in the face of significant interest rate differentials between the US and Japan.

For deeper insights and the latest price movements, explore the respective links for Brent Crude, gold, and the USDJPY.

The economic calendar???

Monday marks a bank holiday in both the UK and Japan, setting a quieter tone for the start of the week. However, there's no shortage of activity, as Service PMIs from major economies like China, France, Germany, and the Eurozone are due for release. Additionally, the Eurozone Sentix Investor Confidence survey will provide insights into investor sentiment across the region.

Tuesday brings a spotlight on the Reserve Bank of Australia as it announces its latest interest rate decision. While no changes to the key Cash Rate are anticipated, investors will keenly parse the nuances in the RBA's statement and press conference for future policy clues. The day also features Swiss Unemployment figures and German Factory Orders, alongside the UK's Construction PMI, which recently signaled growth in the sector for the first time in seven months.

Midweek, a French bank holiday may slow things down slightly, but attention will quickly shift to German Industrial Production, alongside US Wholesale and Crude Oil Inventories, providing further clues on the health of the world's largest economy.

Thursday will reveal the minutes from the Bank of Japan's last monetary policy meeting, potentially shedding light on any discussions around yen intervention. It's also Ascension Day, resulting in closed markets across many Swiss, French, and German exchanges. The Bank of England is also set to announce its latest interest rate decision, with expectations leaning towards maintaining the status quo. Additionally, the US will update on weekly Unemployment Claims, a regular pulse check on the employment landscape.

As the week wraps up on Friday, the UK will be in focus with a slew of data including GDP figures, which are paramount in gauging the country's economic trajectory. The US will also release data on Consumer Sentiment and Inflation Expectations, critical for understanding consumer outlook and inflationary pressures.

Lastly, the week concludes with Saturday's release of Chinese inflation figures through the Consumer Price Index (CPI) and Producer Price Index (PPI), providing key insights into inflation trends in the world's second-largest economy.

With such a packed economic calendar, this week promises to be filled with vital indicators that could sway markets and shape investor strategies globally.

This week’s key earnings???

?? Monday:

Vertex Pharmaceuticals, Simon Property, Microchip Tech, Palantir, Aon, Tyson Foods, BioNTech, Lowe’s, NIO, Lucid Group.?

??Tuesday:?

Walt Disney, BP, UBS, Arista, Duke Energy, Occidental Petroleum, Coupang, Intercontinental, Twilio, Rivian.?

??Wednesday:?

Toyota, Uber, Anheuser-Busch, Arm, Airbnb, Shopify, Robinhood, Teva Pharmaceuticals, Fox Corp, News Corp, Fidelity, Texas Pacific, Duolingo.?

??Thursday:?

Constellation Energy, Takeda Pharmaceutical, Telefonica, Roblox, Warner Bros, Warner Music, Akami Tech, Hyatt Hotels.?

??Friday:?

CRH, Honda Motors, Li Auto, Wynn Resorts, Vera Therapeutics, Weibo Corporation, Soho House.??

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