Market 04/03: ADP employment survey and high oil prices raise inflation concerns

Fed Bostic:

Fed Chair Powell:

Recent inflation reports (though higher than expected) do not significantly affect the final decision.
Will start lowering interest rates this year, but did not specify the timing.
- Will not rush to cut interest rates. Committed to bringing inflation back to 2%.
Labor market is recovering and balancing.

ADP Employment Report shows +184,000 jobs added in March, higher than +148,000 expected - highest monthly increase since July.

→ Interest rate cuts may continue to be delayed.

Wages in nearly all sectors in both Goods and Services sectors recorded increases.
- Mainly concentrated in sectors such as Construction (+33,000), Leisure and hospitality (+63,000), Transportation (+29,000)…

Notably, wage growth for job changers surged +10% YoY - largest increase since July.
While wage growth for job stayers only increased +5.1% YoY.

Market reaction:

However, ADP's non-farm employment survey is only for reference - not the official employment report.

S&P Global Services PMI falls to 51.7 in March (in line with expectations but down from 52.3 previous month).

All component indices (composite index, business activity and production indices) all slightly down.

ISM Services PMI falls to 51.4 in March (< expected 52.8 & previous 52.6).

→ Positive signs for inflation control.

All component indices recorded lower than expected.
- New orders: 54.4 (< previous month 56.1).
- Input prices: 54.3 (< previous month 58.6), lowest level in 4 years.
  → Pace of goods disinflation slowing.
- Employment: slight increase 48.5 but still contracting (> previous month 48.0).

Japan: Economy recovering, BoJ raises rate hike possibility

Japan's output gap (output gap = actual GDP - potential GDP) reached +0.02% in the last quarter of last year, first positive level in 15 quarters.

Output gap is important data to determine if the economy is expanding strongly enough to drive inflation from rising demand.

→ Signs indicating BoJ may raise rates again.

China: Services sector grows strongly in March

Caixin/S&P Global Services PMI rises to 52.7 in March (> previous month 52.5), 15th consecutive month of increase thanks to improved demand + efforts to boost new orders.

→ Signs of expansion in the manufacturing economy.

However, after today's meeting, PBOC expects economic growth outlook to remain bleak with 4.6% growth forecast (lower than 5% target)

BIS and 7 central banks (including New York Fed) testing blockchain encryption to speed up and improve accuracy of international payments

API:

DOE:

Government continues adding 591,000 barrels to SPR stockpile, but expected to end soon due to canceled new purchase contracts.

Crude oil production remains at record high.

WTI oil price has risen more than 25% since the end of last year, to ~86 USD - the highest since October due to escalating geopolitical tensions.

Investors are monitoring supply threats amid escalating conflict in the Middle East + Ukraine's drone attack on a major Russian refinery.

Amazon Web Services lays off hundreds of technical and sales employees.
- Previously, the company said it will abandon the cashierless payment system at stores.
Intel's chip manufacturing reports a 7 billion USD loss, much higher than the 5.2 billion USD loss last year.
- Intel CEO expects chip production to still lose money in 2024, breaking even by 2027.
Tesla China offers interest-free loans when buying cars, up to 5 years to stimulate the market.

SEC seeks public comments on Grayscale, Bitwise and Fidelity's Ethereum ETF.
- Grayscale transferred 1,983 Bitcoin worth 131.4 million USD to Coinbase exchange.
7.7 Richter earthquake in Taiwan is disrupting chip companies' production on the island, threatening global supply.
- 90% of the world's advanced chips are produced by TSMC.