Welcome to the second quarter. US stock markets opened the quarter on a somewhat negative note, with the S&P 500 down by 1.0%, the Nasdaq composite by 0.7%, and the Dow Jones by 2.2% (as of the current update). Federal Reserve discussions and strong US economic indicators are raising doubts about the Fed's plan for three rate cuts. Minneapolis Fed President Neel Kashkari suggested that rate cuts might not be necessary this year if inflation progress slows, particularly with a robust economy. Analysts are now awaiting next week's US consumer price index report and the start of Q1 earnings announcements.
Oil prices surged, with Brent crude reaching five-month highs at $91.75 due to geopolitical tensions in the Middle East involving Israel and Iran. Other factors supporting the oil rally include improved manufacturing conditions, lower-than-expected US pipeline production, and increased risks to Russia's oil infrastructure.
Gold prices reached new highs, hitting $2,330.50 per ounce amidst geopolitical tensions in the Middle East and the traditional appeal of gold as a safe haven asset. Copper also surged to a 15-month high at $9,359 per ton due to supply concerns and positive economic data from China, a major copper importer.
US 10-year Treasury yields rose to 4.37%, up by over 6 basis points for the week, driven by stronger-than-expected US economic data. Market expectations have shifted towards a rate cut in September instead of July.
Macro Trends: US non-farm payrolls for March exceeded expectations at +303K, with the unemployment rate dropping to 3.8%. The strong labor market coupled with high borrowing costs and prices may make it challenging for the Fed to justify a rate cut. Fed Chair Jerome Powell emphasized the need to wait for clearer signs of lower inflation before considering rate cuts.
The Institute for Supply Management's US manufacturing index showed expansion for the first time since 2022, indicating positive economic momentum. Analysts are anticipating slight decreases in the upcoming consumer and producer price index reports, which would further strengthen confidence in inflation moving towards the Fed's target.
Micro Trends: Equities, particularly consumer-focused stocks, faced pressure as some key names anticipated lower near-term growth. Rate-sensitive sectors, including non-profitable tech and real estate, were impacted as expectations for rate cuts diminished and Treasury yields rose.
Upcoming Economic Events: Key economic events in the US next week include CPI, PPI, FOMC Minutes, University of Michigan 1 Year Inflation Expectations, MBA Mortgage Applications, and Average Hourly Earnings. Globally, notable events include UK GDP, UK Industrial Production, Japan Industrial Production, Japan PPI, China CPI, China Trade Balance, and Brazil Retail Sales.
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