Oil Price Surge Heightens Inflation Concerns, Prompting Stock Market Decline

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Economic

Summary:

European stocks decline in response to Wall Street's downward movement, influenced by escalating tensions in the Middle East, which push Brent crude prices above $90 per barrel.

On Friday, global stock markets experienced declines amid concerns about escalating tensions in the Middle East, leading to a surge in oil prices and raising worries that persistent inflation might postpone central banks' interest rate cuts.

In early trading, the Stoxx Europe 600, spanning the region, fell by 1.1 percent, mirroring a late downturn on Wall Street the previous day. The energy sector was the sole gainer as oil prices surpassed $91 per barrel.

Ahead of the New York trading session on Friday, Wall Street futures remained steady, retracting earlier gains following a substantial surpassing of economists' expectations in US jobs growth and an unexpected drop in the unemployment rate for March.

France's Cac 40 and Germany's Dax both declined by 1.4 percent, while London's FTSE 100, which leans heavily on energy stocks, experienced a comparatively modest drop of 0.9 percent.

These market movements occurred as traders assessed the potential escalation of conflict in the Middle East and potential retaliation from Iran following a suspected Israeli attack on its consulate in Damascus.

Analysts suggested that the surge in energy prices raised the prospect of slower interest rate cuts by the Federal Reserve and the European Central Bank this year.

"Surging oil is reviving stagflation fears," remarked Emmanuel Cau, head of European equity strategy at Barclays.

Asian stocks also slipped, with Japan's Topix falling by 1.1 percent, South Korea's Kospi dropping by 1 percent, and Hong Kong's Hang Seng declining by 0.4 percent.

Oil prices had been climbing in recent weeks as global demand forecasts began to exceed supply growth, alongside stronger-than-expected economic recoveries in the US, Europe, and China.

Brent crude, the international benchmark, reached as high as $91.26 on Friday, its highest level since October last year.

Bob Ryan, a commodity and energy strategist at BCA Research, suggested that prices hitting $100 a barrel this year "wouldn't be a surprise," as the Opec+ cartel appears poised to uphold voluntary production cuts that have successfully reduced inventories.

Outside of Opec+, supply growth has also been weaker than previously anticipated, leading the International Energy Agency to predict in March that the oil market would experience a "slight deficit" this year, contrary to earlier forecasts of a surplus.

Francisco Blanch, head of global commodities at Bank of America, commented, "These levels are manageable." However, he cautioned that exceeding $100 could pose significant challenges for the Federal Reserve.

Traders awaited the latest non-farm payrolls and unemployment data from the US, due later on Friday, for further insights into the outlook for interest rates in the world's largest economy.

To stay updated on all economic events of today, please check out our Economic calendar

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Zi Cheng

Economic

US payrolls rose in March by the most in nearly a year and the unemployment rate dropped, pointing to a strong labor market that’s powering the economy.

Nonfarm payrolls advanced 303,000 last month following a combined 22,000 upward revision to job gains in the prior two months, a Bureau of Labor Statistics report showed Friday. The rise exceeded all expectations in a Bloomberg survey of economists.

The unemployment rate fell to 3.8%, while participation rose.

Job growth in March was led by faster hiring in health care, leisure and hospitality, and construction. A measure of the breadth of job gains increased.

Treasury yields rose and S&P 500 index futures remained higher, while the dollar advanced. Traders trimmed bets on the odds the Fed will lower rates in June.

The labor market has been the stalwart of the US economy, giving Americans the wherewithal to keep spending in the face of high prices and borrowing costs. Friday’s data raise questions as to how much the job market is truly moderating, and how crucial that will be to the Federal Reserve in its fight against inflation.

Officials will see fresh figures on consumer and producer prices next week, followed by the March reading of their preferred inflation gauge — the personal consumption expenditures price index — before their April 30-May 1 meeting.

Fed Chair Jerome Powell said Wednesday that labor supply and demand have come into better balance, nodding in part to more immigration. Policymakers have stressed they’re in no rush to lower borrowing costs and that incoming data will guide that decision.

Two Surveys

The jobs report is composed of two surveys: one of businesses that generates the payrolls and wage data, and another smaller one of households used to produce the unemployment rate.

The household survey also publishes its own measure of employment, which surged nearly a half million in March after declining in the prior three months. Many economists have discounted the recent weakness in this metric given that other indicators remain strong, such as unemployment claims and consumer spending.

Also in that survey is the participation rate — the share of the population that is working or looking for work — which rose to 62.7%, the first advance since November. The rate for workers age 25-54 ticked down to 83.4%, still near the highest in two decades and also flagged by Powell for helping unwind some of the tightness of the labor market.

Increased participation may also be helping alleviate wage pressures. The survey of establishments showed that average hourly earnings rose 0.3% from February and 4.1% from a year ago, the slowest annual pace since mid-2021.

Source: Bloomberg

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Ukadike Micheal

Economic

Stocks

Commodity

Bond yields saw an increase following the release of the latest jobs report, which reinforced speculation that the Federal Reserve may delay interest rate cuts. The Treasury 10-year yields climbed by six basis points to reach 4.37%. Meanwhile, S&P 500 contracts faced challenges in maintaining gains, while the dollar showed signs of advancement.

The US job market exhibited robust growth in March, with nonfarm payrolls surging by 303,000 and the unemployment rate dropping to 3.8%. This data signals a strong labor market supporting the economy, with job gains revised upwards for the previous two months, according to the Bureau of Labor Statistics.

In corporate news, Tesla Inc. announced significant price cuts on its Model Y SUVs to reduce its inventory. This move includes markdowns of up to $5,000 on certain models. Johnson & Johnson also made headlines by agreeing to acquire Shockwave Medical Inc. for approximately $13.1 billion, aimed at expanding its medical device offerings for heart disease treatment. Additionally, Apple Inc. laid off over 600 employees in California as part of its decision to discontinue projects related to car and smartwatch displays.

Regarding market movements, S&P 500 futures rose by 0.3%, Nasdaq 100 futures by 0.4%, and Dow Jones Industrial Average futures by 0.2%. However, the Stoxx Europe 600 experienced a 1.1% decline, while the MSCI World index fell by 0.4%. In currency markets, the Bloomberg Dollar Spot Index saw a 0.2% increase, while the euro, British pound, and Japanese yen displayed varied movements against the dollar.

In the realm of cryptocurrencies, Bitcoin and Ether saw declines, with Bitcoin falling by 2.6% to $66,163.45 and Ether dropping by 3% to $3,226.37. Bond yields continued their upward trajectory, with the yield on 10-year Treasuries rising by six basis points to 4.37%. Similarly, Germany's and Britain's 10-year yields saw increases of three and six basis points, respectively.

Commodity markets remained relatively stable, with West Texas Intermediate crude and spot gold showing little change. These developments in various markets reflect ongoing dynamics influenced by economic data releases, corporate actions, and global events.

The latest jobs report and corporate announcements have driven movements across financial markets. Bond yields rose amidst expectations of Fed policy changes, while stock futures showed mixed reactions. These fluctuations underscore the significance of economic indicators and corporate decisions in shaping market sentiment and investor behavior.

Source: Bloomberg

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Ukadike Micheal

Forex

Economic

In March, the Canadian labor market experienced little change in employment, with a slight decrease of 2,200 jobs. The employment rate also dipped by 0.1 percentage points to 61.4%. Conversely, the unemployment rate saw a 0.3 percentage point increase, reaching 6.1%. Year-over-year, the unemployment rate was up by 1.0 percentage points. March Employment Figures: Stagnation in Jobs, Rise in Unemployment_1

March Employment Figures: Stagnation in Jobs, Rise in Unemployment_1

Youth aged 15 to 24 saw a decline in employment by 28,000, while core-aged men (25 to 54) experienced a rise of 20,000 jobs. Employment remained relatively stable among core-aged women and individuals aged 55 and older.

Several industries faced fluctuations in March, with declines in accommodation and food services, wholesale and retail trade, and professional, scientific, and technical services. However, health care and social assistance saw an increase of 40,000 jobs.

On a regional level, Quebec, Saskatchewan, and Manitoba saw decreases in employment, while Ontario saw an increase of 26,000 jobs. Total hours worked remained steady in March but showed a 0.7% increase compared to the previous year.

Average hourly wages among employees rose by 5.1% on a year-over-year basis, reaching $34.81. This growth in wages followed a 5.0% increase in February.

From March 2023 to March 2024, the employment rate declined by 0.9 percentage points, with employment growth unable to keep pace with the increase in the population aged 15 and older. The public sector saw greater employment growth compared to the private sector during this period.

Self-employment fell by 29,000 in March, offsetting a previous increase in February. The employment rate among youth aged 15 to 24 dropped to 55.0%, the lowest level since February 2012.

The unemployment rate rose to 6.1% in March, with an increase in the number of individuals searching for work or on temporary layoff. The labour force participation rate remained unchanged at 65.3%.

In terms of industries, employment declined in accommodation and food services, wholesale and retail trade, and professional, scientific, and technical services, while it increased in health care and social assistance.

Looking at the market impact of these labor market trends, the fluctuations in employment across various industries can influence consumer spending patterns, investor sentiment, and overall economic growth. Industries experiencing job losses may face reduced consumer demand, impacting their revenue and profitability. Conversely, sectors with employment gains may see increased economic activity and investment.

The rise in average hourly wages suggests potential inflationary pressures, as higher wages can lead to increased production costs for businesses. This could affect pricing strategies and ultimately consumer purchasing power. Additionally, changes in the unemployment rate and labor force participation rate can indicate shifts in the overall health of the economy, affecting investor confidence and market performance.

As the labor market continues to evolve, policymakers, businesses, and investors will closely monitor these trends to make informed decisions regarding economic policies, business strategies, and investment opportunities. The interplay between employment dynamics and market conditions underscores the interconnected nature of the economy, highlighting the importance of a comprehensive understanding of labor market data for effective decision-making.

In conclusion, the recent labor market trends in Canada reflect a complex interplay of factors that can have far-reaching implications for the economy and financial markets. Understanding these dynamics and their potential impact is crucial for stakeholders seeking to navigate the evolving economic landscape and capitalize on emerging opportunities.

Source: Statistics Canada

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Ukadike Micheal

Economic

Forex

In March, the U.S. Bureau of Labor Statistics reported a notable increase of 303,000 in total nonfarm payroll employment, coupled with a marginal change in the unemployment rate at 3.8 percent. The rise in employment was particularly pronounced in the health care, government, and construction sectors, indicating a positive trend in the labor market.

According to the household survey data, the unemployment rate remained steady at 3.8 percent, with little change in the number of unemployed individuals, standing at 6.4 million. Among various demographic groups, the unemployment rate for Blacks increased, while rates for Asians and Hispanics decreased. However, the jobless rates for other major worker groups showed minimal fluctuations over the month.

Furthermore, the establishment survey data revealed robust job gains across several industries. Health care added 72,000 jobs, surpassing the average monthly gain over the prior year. Similarly, employment in government and construction saw significant increases, outpacing their respective average monthly gains. The leisure and hospitality sector also witnessed a notable uptick in employment, returning to pre-pandemic levels.

Despite these positive developments, certain industries experienced only modest gains or remained relatively unchanged. Retail trade, for instance, saw little change in employment, with gains in certain sectors offset by losses in others. Similarly, several major industries, including manufacturing and transportation, reported minimal or no change in employment levels.

Average hourly earnings for all employees on private nonfarm payrolls increased slightly in March, reflecting a 0.3 percent rise to $34.69. Over the past 12 months, average hourly earnings have grown by 4.1 percent, indicating a gradual improvement in wage growth. Additionally, the average workweek for employees on private nonfarm payrolls edged up, further highlighting the positive momentum in the labor market.

In terms of technical revisions, the change in total nonfarm payroll employment for January was revised upward, while the change for February was revised downward. These revisions suggest a slightly stronger performance in employment figures for the first two months of the year.

Overall, the latest employment report reflects a mixed but generally positive outlook for the U.S. labor market. While job gains in key sectors signal resilience and recovery, challenges persist in certain industries, highlighting the need for continued vigilance and targeted policy measures to sustain momentum. As the economy navigates through uncertainties, the labor market's performance will remain a critical determinant of overall economic health and investor sentiment.

Source: US Bureau of Labour Statistics

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Samantha Luan

Economic

Forex

The soggy start to April is not just metaphorical: one of the wettest starts to the year continues to impact the UK economy, with the British Retail Consortium reporting Friday that Easter failed to reverse the footfall decline on UK high streets.

"UK footfall declined in March as the wet weather kept shoppers indoors," says Helen Dickinson, Chief Executive of the BRC. Total UK footfall decreased by 1.3% in March (YoY), up from -6.2% in February.

"As the everywhere economy, retail serves all of us, providing the products we need as well as local jobs and investment," says Dickinson.

Pound Sterling's Soggy Start to a Bright Month_1

The Pound has lost ground against most of its G10 peers in the past week, with losses particularly notable against commodity currencies, which have benefited from renewed hopes the Federal Reserve will cut interest rates in July.

The Pound to Euro exchange rate has meanwhile fallen to 1.1660 and looks set to record a sixth consecutive daily loss. To be sure, the Pound to Dollar exchange rate has fared better having recovered to 1.2625, but this is exclusively down to broader USD weakness.

Analyst Kirstine Kundby-Nielsen at Danske Bank says Pound Sterling underperformance can be attributed to softer data out from the UK. She says the final PMIs for March were slightly lower than the preliminary prints with composite at 52.8 (preliminary: 52.9) and services at 53.1 (prelim: 53.4).

But the undershoot against expectations is what ultimately matters for FX, and can explain the Pound's broader underperformance.

"Downside risks for the currency thus appear larger than upside risks at the current juncture," says Wolf von Rotberg, Equity Strategist at J. Safra Sarasin. "Sterling appears expensive, given a moderation in UK macro data."

Pound Sterling's Soggy Start to a Bright Month_2

Results from the Bank of England's DMP survey were also released Thursday and indicate easing inflation and wage growth expectations across the board.

One-year ahead CPI inflation expectations at UK businesses declined further to 3.2% in March (from 3.3%) and expected year-ahead wage growth declined to 4.9% on a 3M MA basis (from 5.2%).

"Overall yesterday's releases were good news for the BoE," says Kundby-Nielsen. The Bank of England will be increasingly confident that it can cut interest rates in the coming months, with a June rate hike fully expected by markets.

The problem for those wanting a stronger Pound is that the Bank of England could now cut before the U.S. Federal Reserve and will cut alongside the European Central Bank.

nterest rate expectations are the number one driver of currencies in 2024, and any hint the Bank of England can lead the rate-cutting cycle (and deliver more cuts than its peers) is negative for the Pound.

"The primary driver of GBP/EUR over the past year has been relative monetary policy divergence," explains Paul Robson, Head of G10 FX Strategy at NatWest Markets.

Danske Bank expects the UK economy to underperform in the coming months; judging this will weigh on the Pound as it would allow the Bank to cut interest rates.

"We expect weaker UK data to increasingly weigh on GBP the coming months," says Kundby-Nielsen.

However, April is typically a favourable month for the British Pound, and analysts say that the currency can appreciate against the Euro and Dollar over the coming weeks as seasonal factors take effect.

Pound Sterling's Soggy Start to a Bright Month_3

"April ranks among the best months of the year for the pound thanks to the repatriation by corporates of overseas FX for dividend payments. The average percentage monthly gain of the last ten years in April is 0.8%. The standard deviation is 2.2%," says Kenneth Broux, a foreign exchange analyst at Société Générale.

Broux says gains are particularly noticeable in the Pound to Dollar exchange rate, but the Pound to Euro exchange rate also benefits.

Kamal Sharma, FX Strategist at Bank of America, says "April is the sweet spot for GBP. If history is any guide, a test of $1.30 in GBP/USD is likely."

Source: Pound Sterling

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Cohen

Economic

New stress points have emerged for global supply chains in the form of Taiwan’s fatal earthquake and the closure of the Baltimore harbor, potentially disrupting trade’s gradual recovery.

Ports in the US East Coast are racing to absorb cargo diverted from Baltimore after last week’s deadly bridge collapse. With the closure of the nation’s busiest gateway for automobiles, companies like Ford Motor Co. and General Motors Co. are already searching for other routes to move their parts and vehicles.

On the other side of the world, Taiwan — the main producer of the world’s most advanced semiconductors — was rocked by its worst earthquake in 25 years that killed at least nine people, left more than 1,000 injured and leveled buildings. Taiwan Semiconductor Manufacturing Co. and United Microelectronics Corp. halted some chipmaking machinery and evacuated staff at certain facilities though both expect to resume normal operations.

This as Bloomberg’s Trade Tracker showed a slightly worse reading in April, with three out of 10 indicators in “below normal” territory, versus just two in March. Taiwan’s export orders dropped sharply despite hopes of an uptick in electronics sales. Shipping volumes in Hong Kong also plunged even as ports in Singapore and Los Angeles saw sizable increases.

The world’s supply chains are now even more precarious, with continued violence in the Red Sea still forcing containers traveling between Asia and Europe to take longer, costlier routes around Africa. The Panama Canal will also need at least the rest of this year to fully recover from the 2023 drought that depleted water levels and choked vessel traffic. With fewer routes to reach their manufacturers and markets, companies — and the broader global economy — risk missing out on burgeoning consumer demand.

We’ve selected measures across shipping, sentiment and export volumes to watch. For the clearest indication, we measured how far each gauge is from historic norms. These data update in real time from the Bloomberg Terminal as they’re reported.