How will the market react to the US jobs report?
There were some hawkish comments from US Federal Reserve officials yesterday
Brent crude oil broke above $90 yesterday, reaching its highest level since last October. Tensions in the Middle East and fears of Iran getting more involved in the conflict are keeping the oil price buoyant and weakening risk sentiment.
There were some hawkish comments from US Federal Reserve officials yesterday with Kashkari, who projected in March that there would be 2 interest rate cuts this year, saying that he’s wondering if there’s a need for a cut at all this year given the strength of recent data. However, US bond yields tried to jump higher to 4.38% on the hawkish comments but ended the day lower at 4.31% (5 basis points lower than the previous close).
As such, the market is heading into the US jobs report, the US Non-Farm Payrolls, to be released later today, fearful that a strong report will cause more Fed officials to become hawkish and weaken risk sentiment further. However, a softer than expected report will likely cause US bond yields to fall further and help strengthen risk sentiment.
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Day Ahead
The US Nonfarm Payrolls is expected to show that +200k jobs were added to the economy in March, down from +275k in February. The US unemployment rate is expected to remain at 3.9%.
The Canadian economy is expected to see +25k jobs added to the economy in March, down from +40.7k in Feb. The unemployment rate is expected to edge higher to 5.9% from 5.8%.
Trading Plan
1. Currencies:
Neutral
2. Commodities:
Uranium & Energy - Stay invested for now.
3. Stocks:
US Stock Index: The US stock market suffered heavily yesterday due to hawkish comments from Federal Reserve officials.
(For more timely info on our Trading plan, click HERE)
Single Stocks: TrackRecord Model Portfolio is tracking the broader market for now.
Key risks:The US jobs data tonight will be a key influence to how close the market perceive the US Federal Reserve is to cutting interest rates. Comments from Fed officials about their views on the possibility of interest rate cuts in the months ahead could influence risk sentiment.
What Happened Yesterday
Fedspeak:
Barkin (current voter, slight hawk): "Disinflation is likely to continue, but the speed of that remains unclear.” "I think it is smart for the Fed to take our time.” “Open to rate cuts once it is clear progress on inflation will be sustained and apply more broadly in the economy.”
Kashkari (2026 voter, known hawk): “In March I jotted down two rate cuts for this year.” “But if inflation continues to move sideways, it makes me wonder if we should cut rates at all this year.”
Mester (current voter, slight hawk): “Do anticipate we'll be in a position to lower fed funds rate later this year.”
Goolsbee (2025 voter, known dove): “Last two months of inflation data a bump; can't write it off as purely noise.” “If we stay restrictive for too long, we will likely see employment begin to deteriorate.”
(Barkin is still on the fence on whether rate cuts should occur this year. Kashkari is becoming increasingly hawkish. Mester reiterated that a rate cut should occur this year. Goolsbee is becoming increasingly wary about the recent inflation data, sounding more hawkish.)The US Initial Jobless Claims rose by +11k from last week's adjusted figure of 212k (revised form 210k), reaching 221k (vs 214k expected) for the week ending March 30th. This marks the highest level in two months. This uptick indicates a shift away from the long-standing trend of low unemployment claims. Continuing Jobless Claims fell slightly to 1,791k from the previously revised print of 1,810k (revised from 1,819k).
The US Treasury Yield curve inversion widened to 0.34% as the US 2-year bond yield fell -0.03% to 4.65% while the 10-year yield slipped -0.05% to 4.31%.
The US stock futures traded sideways through the Asian and London trading sessions before the release of the US Initial Jobless Claims resulted in a brief spike, allowing the S&P 500 futures rise +0.66% higher when the New York session began.
The US stock market opened higher from Wednesday. It then remained at elevated levels until the hawkish comments from Federal Reserve officials weakened risk sentiment significantly and sent the US stock markets lower. The S&P 500 dropped -1.23% (high: +0.87%, low: -1.26%), the Dow Jones slipped -1.36% (high: +0.75%, low: -1.45%) while the Nasdaq fell -1.55% (high: +1.11%, low: -1.57%).
Despite hawkish comments from fed officials, the crypto market managed to remain buoyant on the day. Bitcoin rose as high as 69,384 (+5.0%) while Ether rose as high as 3,444 (+4.0%) intraday. However, Ether saw a significant drop of -3.9% following the hawkish comments from the Fed but recovered slightly after.
Headlines & Market Impact
Japan warns against excessive yen moves, repeats verbal intervention
Notable Snippet: Japanese Finance Minister Shunichi Suzuki said on Friday excessive exchange-rate moves were undesirable, reiterating the government's resolve to take appropriate actions against sharp yen falls.
"It's important for currency rates to move stably reflecting fundamentals. Excessive volatility is undesirable. We're looking at market moves with a high sense of urgency," Suzuki told reporters when asked about the yen's recent declines.
"There's no change to our stance that we're ready to respond to excessive currency moves, without ruling out any options."
The dollar fell to a two-week low of 150.95 yen after the remarks, as repeated verbal warnings by authorities keep investors on guard against the chance of yen-buying intervention.
The yen fell to a 34-year low of 151.975 versus the dollar last week despite the Bank of Japan's historic policy shift that ended eight years of negative interest rates, as markets interpreted its dovish guidance as a sign further rate hikes will be some time away.
Shortly after the yen hit the 34-year low on Wednesday last week, Suzuki said authorities were ready to take "decisive steps" against speculative yen moves in the strongest warning to date that currency intervention could be imminent.
He has held off on using such language since then, but continued to warn that authorities won't rule out any options to deal with excessive yen declines.
What we think: Calls for intervention for the JPY are continuing. The 152 level will be important to monitor as the Japanese policymakers are becoming increasingly disturbed by the Yen weakness.
Baltimore shipping set to resume by end of April with full capacity by end of May
Notable Snippet: The U.S. Army Corps of Engineers said Thursday it expects to open a new channel to the Port of Baltimore by the end of April, freeing up commercial shipping blocked by a collapsed bridge, and then restore port access to full capacity by the end of May.
The main channel has been blocked by wreckage since the fully loaded container ship Dali lost power and rammed into a support column of the Francis Scott Key Bridge on March 26, killing six road workers and causing the highway bridge to tumble into the Patapsco River.
The Army Corps, part of a multi-agency team responding to the Baltimore disaster, announced the plans one day ahead of a visit by President Joe Biden, saying that within four weeks the channel would be suitable for some roll-on/roll-off vessels that transport automobiles and farm equipment.
The Port of Baltimore ranks first in the United States for the volume it handles of autos and light trucks and farm and construction machinery, according to the state of Maryland. Most of that traffic has been suspended since the accident, though some terminal operations outside the affected area have resumed.
Earlier this week, two auxiliary channels suitable for emergency vessels, tugs and barges were opened on either side of the disabled ship, which is stuck beneath bridge debris with thousands of containers and a crew of 21 sailors still aboard.
But with depths limited to 11 feet (3.35 metres) and 14 feet, those two channels are too shallow for major cargo ships, which need a depth of 35 feet.
What we think: The blockage of this significant channel was thought to impact the shipping route in the US heavily. However, Any weakness in risk sentiment from this blockage is likely to ease given this recent development.
Ripple to launch U.S. dollar stablecoin, taking on a $150 billion market dominated by Tether, Circle
Notable Snippet: Crypto startup Ripple is the latest major player to jump into the $150 billion stablecoin market with the launch of a digital currency pegged to the U.S. dollar.
The stablecoin will always be backed 1-to-1 by an equivalent sum of assets — U.S. dollar deposits, U.S. government bonds and cash equivalents — that the company holds in reserve, according to Ripple.
The crypto firm said its reserves would be accounted for in publicly available monthly attestation reports. It did not say which firm will audit.
Ripple is first launching its stablecoin in the U.S., but didn’t rule out offering additional regional products in non-U.S. markets, like Europe and Asia.
The move would pit Ripple against stablecoin giants like Tether, which is behind the largest stablecoin USDT, and USDC issuer Circle.
Payments giant PayPal, meanwhile, launched its own U.S. dollar stablecoin called PayPal USD, a stablecoin backed by U.S. dollars and dollar equivalents that is issued by crypto firm Paxos.
But Ripple CEO Brad Garlinghouse said he’s not deterred by the competition. “This market will look different [in future], certainly based on size,” he told CNBC in an interview this week.
Garlinghouse said the company decided to introduce a stablecoin to the market last year in response to the “depegging” of rival firms Tether’s USDT token and Circle’s USDC.
What we think: The launch of another stablecoin is reflecting the increased interest in the crypto market once again. While a USD stablecoin has been in the market for a while now, it will be particularly interesting if we start to see more stablecoins of other currencies.
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Best,
Phan Vee Leung
CIO & Founder, TrackRecord