Rise and shine everyone. It’s Jobs Friday.

The big news everyone will be watching today is the US Unemployment report. After the past week of Fed speakers, and all the hawkish discussion the market wants clues as to what brings the Fed closer to cutting rates.

US equities saw quite the nasty price action yesterday with SPX giving up almost 100pts.

First, we had the threat of retaliation from Iran. This sent oil prices higher on possible escalation in the Middle East. Remember Iran is very close to the Strait of Hormuz through which over 20% of the world’s oil gets transported.

While oil may take a breather here, we’re still overall bullish on oil prices.

Add to that, we had four Fed speakers discussing inflation and rate cuts. Kashkari and Goolsbee both talked about how the Fed may not even need to cut in 2024. Remember, neither are voters this year.

Markets are seeing somewhat of a recovery in the overnight trading and during the Asian session, as oil pulls back marginally. Yields continue to remain elevated and the Yield Curve steepened on Fed speaker's

hawkishness.

US Jobs Report

The consensus estimate is for 200k additions to non-farm payroll (NFP) and a 3.9% unemployment rate.

The NFP is expected to slow from last month when weather conditions helped boost the number. There were also reports of above-normal levels of immigrants entering the workforce.

A higher number on the unemployment rate could be cause for the market to rise because it being the Fed one step closer to cutting rates. Remember, the Fed revised down their target to 4% for the year and rising unemployment has been often cited as the reason to cut.

Initial jobless claims came in at 221k vs 214k est - the highest sign Feb. There are certainly several measures that show the US job market is not as resilient as previously assumed. Quits rates are rising and so is the average hours worked.

The Average Hourly Earnings which spiked last month to 4.3% YOY, doesn’t bode well for core inflation. This will be one to watch since the last ISM services reading on Wednesday came out lower, printing 53.4, the lowest point since March 2017 excluding the Covid drop in 2020.

The Market

The job data will be important today.

Looking at the NFP, which has regular surprised to the upside over the past few readings, the market is probably expecting yet another hotter print. Given the price action we saw yesterday, that’s not a great thing.

While a higher unemployment number could push the market higher, a higher NFP could push the market lower.

The market fell sharply yesterday taking out key thresholds. Price fell right through the 20-day moving average and a hotter NFP print could lead to further selling - at least another 50bps.

While we still think the market could remain bullish into the end of the year, we have been at extreme overbought levels and a pullback is probably well overdue.

This could be the start of a larger pullback down to previous levels of consolidation. That would be a decline of close to 9%.

The 10Y is currently at 4.3% and we don’t foresee material pressure on equities until it crosses the 4.5% threshold. While term premia in bonds still remains weak, inflation swaps are beginning to pick up and that could see higher bond yields at the longer end.

Quote of the Day

• (US) Fed’s Barkin (voter): Still looking for slowdown in reported inflation to sustain and broaden

• (US) Fed's Mester (voter): Expects progress towards 2% inflation will continue; Anticipates being in position to lower Fed Funds rate later this year

• (US) Fed's Kashkari (non-voter): Need to see more inflation progress before cut; Question of why rates should be cut if the economy remains strong

• (US) Fed's Goolsbee (non-voter for 2024): Inflation has been moving sideways and if it continues to do so it makes me wonder if we should cut rates at all this year

Chart of the Day

Bank of America’s view on today’s NFP report.

Other Stories

• The Reserve Bank of India holds rates as expected at 6.5% for the seventh consecutive meeting in April 2024, as widely expected amid persistent price pressures. The latest move came after annual inflation stood at 5.09% in February 2024, almost unchanged from January, after hitting a four-month high of 5.69% in December 2023

• Japan Feb Household Spending was better than expected

• Japan 2-year govt bond yields rose to 0.21%, highest since April, 2011

• Japan BOJ’s Gov Ueda said that the BOJ hopes to reduce the amount of government bonds it buys in the future. Will not comment on FX moves. Added that expects trend inflation to gradually accelerate, particularly given annual wage outcomes to date

• Thailand Mar CPI M/M: 0.0% v 0.1%e; Y/Y: -0.5% v -0.4%e (11th straight month annual pace was below target range

• Philippines Mar CPI M/M: 0.1% v 0.3%e; Y/Y: 3.7% v 3.8%e (4th month with annual pace within target band)

• Philippines Central Bank (BSP): Inflation could temporarily accelerate above target range in next two quarters

• The Halifax House Price Index in the United Kingdom fell by 1% month-over-month in March 2024, following five consecutive months of growth.

Calendars

(news taken from Reuters, FT, Bloomberg; Calendar from Trading Economics)