Market 04/05: NFP labor report supports Fed keeping high interest rates and soft-landing

Fed Kashkari (04/04): Proposes not cutting interest rates this year

• Need clearer data on disinflation before deciding to cut interest rates.

• May not need to cut this year.

• Market sold off in yesterday's session, however, in reality, stocks started selling off before Kashkari's speech.

  • The plunge comes from the impact of escalating conflict between Iran and Israel.

NFP payroll survey from BLS: Labor market remains strong

Labor market remains strong: number of jobs increased sharply in both Payroll and Household surveys

Nonfarm Payrolls (NFP) increase +303,000 jobs in March - highest in nearly 1 year (> estimate 212,000 & previous month 270,000).

→ Job market remains relatively strong.

• Unlike previous months (when Household Survey showed fewer job gains than Payroll survey - NFP), this month, Household survey even recorded a surprising surge in jobs +498,000.

• Number of full-time and part-time layoffs both decreased.

Job gains recorded in all sectors, specifically:

• Job growth concentrated in sectors such as Education & Health Care, Government, Leisure & Hospitality, Construction,…

• Employment in Construction no change.

  

  • Among them, Leisure & Hospitality sector jobs have increased back to the highest level since the Covid pandemic.

Unemployment rate decreases, long-term unemployed changes insignificantly

• Unemployment rate (unemployment - U3) in March slightly decreases to 3.8% (< previous 3.9%). → More people participating in the labor force.

• Underemployment rate - U6 (including those who have stopped looking for work + part-time workers seeking full-time) stable at 7.3%.

• Long-term unemployment rate (> 27 weeks) in March increased slightly but not significantly.

• Labor force participation rate increased slightly to 62.7% (beat estimate 62.6%, previous 62.5%), mainly among men.

• Prime-age (25-54 years) labor force participation rate decreased slightly from previous month to 83.4%.

• Average weekly hours worked increased back to 34.4 in March.

Wage growth pace continues to slow, labor supply-demand balanced

• Average hourly earnings growth eased slightly to +4.1% YoY.

• Average hourly earnings rose +0.3% MoM (in line with estimate and up slightly from previous 0.2%).

→ Overall, surging immigration is allowing job growth to continue without inflationary pressure from wages.

Market reaction:

• Strong labor market causes market rate cut expectations to continue declining to just over 50% in June.

• Meanwhile, stock market recovered to green at session open on soft-landing confidence:

  • Job gains but wage slowdown: no pressure on inflation

Japan: BoJ considers short-term rate hike, JPY highest in 2 weeks

• JPY up 0.4%,highest in two weeks on expectations BoJ will hike rates soon, as wage increases start to reflect in consumer prices.

  • USD/JPY at 150.81 - lowest since March 21.

• BoJ Governor Ueda also affirmed no immediate balance sheet reduction plans, next rate hike possible from summer to autumn.

  • Japanese link: here.

Cryptocurrency market:

• Terraform Labs co-founder Do Kwon may face trial in New York after Montenegro Supreme Court cancels crypto extradition to South Korea.

• Sony Bank (Sony Group) tests and develops JPY-pegged stablecoin to reduce payment and remittance fees.

Other news:

1. Northeast US had a strong 4.8 Richter earthquake this morning, one of the strongest on record. Many flights to/from NY diverted for emergency landings.

   

2. Reuters reports Tesla cancels low-price car production plan due to fierce competition from Chinese EV makers, as market flooded with cars as low as 10,000 USD.

   

   • Tesla stock down 6% on news. However 30 minutes later, Elon Musk refuted it on X, causing quick 4% recovery in minutes.

     

3. US office vacancy rate hits record high of 19.8%, up from 19.6% in Q4 2023, surpassing peaks in 1986 and 1991 after the rise in remote work trends.

   

4. Thames Water's parent company announces default with 400 million GBP bonds becoming non-performing.