Rate hike expectations still headwinds for Indices and Oil

Financial markets came under pressure early today on rate hike worries following Friday's monthly jobs report, although stocks rebounded as the day progressed and there is very little sense of panic. Rate hike expectations still provide headwinds for the equity and commodity sector

For more detailed market commentary go to StoneX Market Intelligence, https://my.stonex.com/. 

Economic data argues Fed should stay the rate rise course

Wall Street sees Friday’s monthly report as consistent with the data that we’d been seeing last week, but nothing to justify a pivot by the Federal Reserve. Rather, recent data argues for the Fed to stay the course. The market is pricing in 69% odds of another 25-basis point rate hike this morning, and that adds to the negativity on Wall Street amid increased expectations of a recession.

This is the final jobs report that will be released ahead of the Fed’s May meeting, although many other reports that will be released between now and then could influence the Fed: consumer and producer price index and retail sales data this week. Fed Chair Jerome Powell has stated his bias not make the mistake made by the central bank in 1980, lowering rates too quickly that then requires more drastic action to get things under control. We are very early in the process of layoffs rising, hiring intentions starting to slow and jobless claims starting to rise.

Friday’s jobs report in detail

• There were no big surprises in the Bureau of Labor Statistics jobs report: the economy created 236,000 jobs in March, very close to the forecast 240,000 and down from the 326,00 created in February
• The unemployment rate ticked lower to 3.5%, when it was expected to remain unchanged at 3.6%
• The labor participation rate ticked higher to 62.6%
• Average hourly earnings rose 0.3% month-on-month as expected, which is up from 0.2% the previous month; average hourly earnings are “only” up 4.2% year-on-year, down from 4.6% the previous month

Indices flat, Bonds fall

• At the time of writing, the broad S&P 500 index and the tech heavy NASDAQ were off marginally by 0.2% and 0.3% at 4,097 and 12,045, respectively
• The VIX, Wall Street’s fear index, rose in the morning but fell back to 19.1 reflecting a moderate view of risk
• The dollar index was up again at 102.6, with £/$ 1.238 and €‎/S 1.085
• Yields on 2- and 10-year Treasuries were higher at 3.99% and 3.41%, trending up after bond market strength last week

Commodity prices dip, but Gold, Oil still at highs

• Gold’s was 1.1% lower at $2,004 per ounce, while still maintaining its recent uptrend
• Crude oil prices were 0.9% lower at $80.0 per barrel, towards the top of its year-to-date trading range
• Grain and oilseed prices pushed solidly higher overnight, but they came under pressure
• Soybean prices slipped back into modest losses
• Rising weather concerns in both the Southern and Northern Plains provided support for corn and wheat prices, along with increased geopolitical risks in the Black Sea region

China’s Taiwan Military Drills

• China conducted live-fire military drills around Taiwan over the past three days, after French President Macron departed his three-day visit of China, and in response to Taiwan’s president meeting with the US Speaker of the House in California last week
• Chinese drills included penetration of Taiwan’s territorial waters and simulated precision attacks on strategic points of interest in Taiwan
• Simultaneously, the US Navy sent a message of its own to China, sending a destroyer close to a contested island a thousand miles away in the South China Sea

Analysis by Arlan Suderman, Chief Commodities Economist.

Read more of Arlan’s thoughts at StoneX Market Intelligence at https://my.stonex.com/