DXY initially hit a low of 103.92 after US initial jobless claims increased to 221k for the week ending March 30, more than the 214k consensus. The US Department of Labor revised the previous week to 212k from 210k. On a 4-week moving average basis, initial jobless claims increased to 214k in March after holding steady around 209-210k for two months. Despite modest increases, the ISM employment indices held below the breakeven 50 level. Hence, consensus reckoned that today’s nonfarm payrolls (NFP) could fall to 214k in March from 275k in February. However, we cannot rule out surprises in NFP. Payrolls came in below 200k in October but above 200k in January despite similar readings in ADP employment, initial jobless claims, and the ISM employment indices. Pay attention to the average hourly earnings growth, which consensus sees falling to its lowest level since June 2021. Another surprise rise in the unemployment rate should see the Fed keeping to the three rate cuts it projected later this year.
The US Treasury 10Y yield tumbled to 4.31% after falling from an intra-day high of 4.43% to 4.35% on Wednesday. Interest rate futures increased the odds for a Fed cut in June to 60% for the first time in a week, brushing aside Minneapolis Fed President Neel Kashkari’s comment about possibly taking out the two rate cuts he pencilled in March’s dot plot if disinflation stalls. However, Cleveland Fed President Loretta Mester reckoned the Fed was getting close to the confidence level to start lowering rates in the next few months. The divide should not come as a surprise. At the FOMC meeting in March, nine out of the 19 members predicted two or fewer rate cuts. Fed Chair Jerome Powell sits in the middle, awaiting more data to affirm inflation’s path towards the 2% target to lower rates.
Next week, consensus sees US CPI inflation rising a second month to 3.5% in March from 3.2% in February. Given the unrelenting rise in crude oil prices over the past week, investors took profit on US equities after a five-month rally fuelled by rate cut expectations, seeking safety in the DXY to Wednesday’s close of 104.2. The S&P 500 Index fell 1.2% to 5147, its worst single-day sell-off since mid-February. Markets will also assess the rate cut intentions at the Reserve Bank of New Zealand, the Bank of Canada, and the European Central Bank meetings next week. In the end, it is clear that US data and the Fed have taken the driver’s seat for now. JPY and CNY are eyeing relief from any drop in US bond yields, as we navigate the NFP uncertainties and higher oil prices.
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