US stocks got off to a weak start to the second quarter and posted losses for the week. Amongst factors holding stocks back were hawkish comments from Federal Reserve policymakers, with chairman Jerome Powell reiterating that the central bank needed greater confidence that price pressures were coming down towards its target before cutting interest rates. Adding to inflation worries was an uptick in oil prices given rising geopolitical tensions, which could affect supply. Furthermore, ISM’s manufacturing purchasing managers’ index moved back into expansionary territory for the first time since September 2022 and input prices moved higher.
Friday saw the release of the closely watched non-farm payrolls report in which US employers added 303,000 jobs in March, much higher than expected. The unemployment rate also edged down to 3.8% while average hourly earnings rose at their slowest pace since June 2021. All eleven of the S&P 500’s sectors gained on Friday as investors welcomed signs of a buoyant economy however this was not enough to push indices into positive territory for the week. The S&P 500 ended 1% lower, with growth stocks generally faring better than value, while the Nasdaq Composite lost 0.8% and the Dow Jones Industrial Average fell 2.3%. Meanwhile, Treasury yields moved higher, jumping after the jobs report as uncertainty remains over whether the Fed will begin cutting rates in June.
European markets also ended lower in a holiday shortened week on uncertainty of the timing of rate cuts and also increasing tensions in the Middle East. The pan-European STOXX 600 declined 1.2% to snap a 10-week winning streak, dragged down by losses in utilities, retail and telecoms. Regional indices were also lower, with France’s CAC 40 and Germany’s DAX both down over 1.7%, while the UK FTSE 100 recorded a more modest loss of 0.5%. This came even after headline eurozone inflation declined by more than expected, coming in at 2.4% in March, while core inflation also cooled, raising hopes the European Central Bank will begin cutting rates in the summer.
Japanese markets weren’t able to escape the global equity slump, with the Nikkei 225 down 3.4%. This was even as the yen continued to hover around a 34-year low against the US dollar. There have been comments from ministers highlighting their readiness to respond if there were excessive moves in currency markets, although no action has been taken so far. Bucking the downbeat trend, Chinese equities managed to notch gains for a holiday shortened week, as investors focused on signs of economic improvement in the region. The Shanghai Composite advanced 0.9% and Hong Kong’s Hang Seng was up 1.1%. The official manufacturing PMI climbed back into expansionary territory in March, while the private Caixin manufacturing PMI also edged higher in its fifteenth month of expansion.
Weekly macro highlights
US non-farm payrolls rise in March
US non-farm payroll employment rose by 303,000 in March, above the downwardly revised 270,000 increase in February and market expectations of 200,000. Driving the job gains in March were respective increases of 72,000 and 71,000 in healthcare and government employment. The household survey data collected by the Bureau of Labor Statistics showed a 469,000 increase in employed persons, above the 303,000 reported in the establishment survey. Within this data, full-time employment fell by 6,000 persons and part-time employment rose by 691,000 persons. Additionally, the number of persons working multiple jobs rose by 217,000 persons to account for 5.2% of total employed persons. Nonetheless, the unemployment rate fell by 0.1 percentage points to 3.8% in March, remaining in the 3.7-3.9% range it has been in since August 2023. Average hourly earnings for all employees on private non-farm payrolls rose by 0.3% in March to USD 34.69, a level 4.1% higher than in March 2023.
US ISM PMIs point to continued expansion in March
The US ISM manufacturing PMI rose from 47.8 in February to 50.3 in March, above market expectations for a smaller increase to 48.4. The data was above the 50 level that separates expansion from contraction, marking the first reading above this level since October 2022. Within the data, both the production and new orders components entered expansion, having been in contraction the prior month. Employment remained in contraction according to the PMI data, though at a slower pace than in February, with the subindex rising from 45.9 to 47.4. Contrasting the improvement in manufacturing conditions, the ISM services PMI fell from 52.6 to 51.4 in March, indicating a slower rate of expansion. Nonetheless, production still rose at a faster rate than in February, with the subindex increasing from 57.2 to 57.4. New orders rose at a slower rate in March though, down from 56.1 to 54.4.
Eurozone flash inflation data signals continued disinflation in March
Eurozone flash HICP (harmonised index of consumer prices) inflation data for March saw a continuation of the recent disinflation trend, with headline inflation declining to 2.4% year-on-year (YoY) from 2.6% in February. Additionally, core HICP inflation dropped from 3.1% YoY to 2.9% according to the estimates published by Eurostat. Both datapoints were below market expectations, which were for headline inflation to be unchanged at 2.6% YoY and core inflation to decline to 3.0% YoY. Disinflation, particularly for the core index, was driven by falling non-energy industrial goods inflation in March. These fell from 1.6% YoY in February to 1.1% YoY in March, while services inflation remained unchanged at 4% YoY for the fifth consecutive month. In addition to the inflation data, Eurostat published unemployment data for February, with the unemployment rate rising by 0.1 percentage points to 6.5%. This saw the unemployment rate remain in the 6.4-6.5% range it has been in since March 2023.
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