Market Commentary: Friday 5th April

NFPs is the main event today with payroll job growth expected to slow, albeit with a solid 200k jobs added in March. One of the main themes going forward will be the whether or not we continue to see a divergence between payroll employment and household employment data. Rising household employment in March could indicate a return of workers to the labour force, meaning the 3.9% unemployment rate could remain unchanged. However, there are several indicators still suggesting weakening labour demand and, if we see weaker job growth in coming months, perhaps markets have underappreciated the potential for much softer Q2 data that would lead to the Fed cutting rates in June.

Asian equities declined overnight, the MSCI Asia Pacific Index falling 1.2% as gauges in Hong Kong, South Korea and Australia also all retreated, Japan’s shares led the decline as the yen climbed. This follows moves in US markets yesterday, with stocks dropping sharply, this came Minneapolis Federal Reserve President Neel Kashkari told an audience he had planned for two interest rate cuts this year, though if US inflation continued to move “sideways, then that would make me question whether we need to do those rate cuts at all”. The S&P 500 fell 1.2%, reversing earlier gains and making it the worst day for the benchmark since mid-February, while the Nasdaq Composite fell 1.4%, in its biggest daily loss since early March. In government bond markets, the 10-year Treasury yield slipped to 4.31%.

Brent crude settled about 1.5% higher to $90.65 a barrel on yesterday, while the West Texas Intermediate rose about 1.4% to $86.59 a barrel. This follows a jump in Oil prices on Tuesday, after strong manufacturing data from the US and China led to expectations of resurgent demand for crude. On Wednesday, Opec reaffirmed its production cuts and the conflict in the Middle East deepened following the killing of seven humanitarian aid workers in Gaza. While yesterday Israeli Prime Minister Benjamin Netanyahu said at a security cabinet meeting his country will operate against Iran and its proxies and will hurt those who seek to harm it, conflict between Israel and Iran will likely significantly restrict the supply of oil coming from the Middle East.

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