On Last Friday, the March payrolls report exceeded expectations across the board, with employment growing by 303k, solid wage growth, and a decrease in the unemployment rate to 3.8%, despite a slight increase in the participation rate. The initial comments from Federal Reserve governors leaned towards the hawkish side. Dallas President Logan emphasized that there is no urgency to cut rates, citing concerns about disinflation stalling and the risk of cutting too soon outweighing being late. Similarly, Fed Governor Bowman highlighted upside inflation risks and expressed discomfort with cutting rates until disinflation returns. Both Logan and Bowman mentioned the possibility of a higher neutral rate, which could limit the Fed’s capacity to cut rates overall.
US yields across various maturities revisited year-to-date highs, with the US 2-year yield surpassing resistance from the 200-day moving average to trade around 4.78%, and the 10-year yield rising above the 4.40% resistance level. Money markets in the US are increasingly pushing back expectations for the Fed’s first rate cut, awaiting additional evidence supporting their case, particularly in a reaccelerating CPI.
Despite the support from rising yields, the US dollar did not significantly benefit, driven by the real component and concentrating at the front end of the curve. EUR/USD rebounded from intraday lows to close unchanged at 1.0837, partly influenced by rising German yields and a surprisingly resilient risk environment, with US stock markets rising.
In contrast, gold continued its rally, reaching new record highs, while oil prices retreated below $90 per barrel. The partial retreat of Israeli forces from southern Gaza eased some geopolitical and supply concerns.
Looking ahead, the economic calendar will focus on inflation figures in the US and the European Central Bank meeting on Thursday. The lack of desired wage negotiation data in Frankfurt may provide ECB President Lagarde with an easy way out of tricky questions. Additionally, the central banks of Canada and New Zealand will meet on Wednesday, and US banks will kick off the Q1 earnings season on Friday. A series of Fed speeches are also scheduled throughout the week.
