Indices dip on recession fears, Gold holds above $2,000

Recession talk could again be heard on Wall Street today following more data showing a slowing jobs outlook, and a slowing pace of growth in the heavily labor dependent service sector – bad news on economic recession, good news for the inflation outlook. We’ll get weekly jobless claims data tomorrow, followed by the monthly jobs report from the government on Friday. While this isn’t enough yet to tame wage inflation, this week's data thus far shows that at least we've started to move in the right direction.

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Indices weaker, Bonds stronger

• At the time of writing, the broad S&P 500 index and the tech heavy NASDAQ were off 0.4% and 1.3% at 4,083 and 11,966, respectively
• The VIX, Wall Street’s fear index, traded up to 19.2 reflecting more risk
• The dollar index was half of a per cent at 101.6, with £/$ 1.25 and €‎/S 1.09
• Yields on 2- and 10-year Treasuries were stronger at 3.79% and 3.29%, respectively, fresh seven-month lows

Gold maintains gains, oil price falls back

• Gold’s rally paused at $2,039 per ounce, but still up almost nine per cent this year
• Crude oil prices was off 0.4% at $80.4 per barrel, with traders concerned about the impact of recession on demand
• US commercial crude oil stocks, excluding the Strategic Petroleum Reserve, fell by 3.7 million to 470.0 million barrels in the week ending March 31, putting stocks 4% below the five-year average for this time of year
• Grain and oilseed markets were mixed to lower

Significant slowdown in service sector employment

• The Institute for Supply Management (ISM) Services Index for March was 51.2, below analyst expectations of 54.4, and down from 55.1 last month
• That’s good news for inflation as much of the stickiness in inflation has been tied to the labor-intensive service sector
• ISM’s March manufacturing index came in at 46.3, showing a contraction in activity underway (a number below 50 month-on-month signifies that growth is slowing)
• The private sector created 145,00 jobs in March, according to this morning’s Automatic Data Processing (ADP) report, less than the expected 200,000
• These reports reinforce yesterday's Job Openings and Labor Turnover Survey (JOLTS) report showing declining job postings

China’s reemerging growth prospects ‘mixed’

• Chinese markets are closed for a holiday today, but this week’s economic data revealed a mixed outlook for its economy coming out of Covid – optimism was a bit cooler for the household sector compared to manufacturing
• A quarterly survey done by China’s central bank showed rising optimism among Chinese entrepreneurs and bankers, with its business sentiment index on the general economy rising to 33.8%, up 10.3 points from the previous quarter
• Nearly two-thirds of the 5,000 surveyed firms indicated that operations had recovered to “normal” levels in the first quarter, while their outlook for the second quarter rose nearly 11 points to 50.9%
• The survey’s loan demand index surged 10 points to 73.9%. The sub-index for the real estate sector had the lowest index at 55.3%, but that too was up 11.6 points on the quarter
• However, the residential income status index came in at 50.7%, up 6.9 points on the quarter, while the employment index was up 6.8 points to 39.9%
• Just 23.2% of the respondents said that they would increase spending in the coming months, which is essentially unchanged from the previous quarter showing that the consumer in China remains wary of increasing spending beyond their basic needs, which continues to limit growth in domestic consumption

Taiwan talks anger China

• US Speaker of the House Kevin McCarthy is scheduled met Taiwan President Tsai Ing-wen this morning in California
• China vowed a strong response – commodity traders are watching closely for signs that China's response might create greater risks for trade with the world's largest commodity importer in the weeks and months ahead

Analysis by Arlan Suderman, Chief Commodities Economist.

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