Morning Bid: Rough winds do shake the darling buds of May

Simon Property

05/02/2024 11:00

A look at the day ahead in U.S. and global markets by Alun John 

    Markets, until last week's blowout jobs numbers, were all
but certain that the Federal Reserve would have cut interest
rates by its May meeting - the question was whether that first
reduction would come in March, or at the May meeting itself. 
    Now even a May rate cut is less certain. Market pricing
reflects roughly a 30% chance the Fed will still be holding
rates at its current level after that meeting, down from around
10% a week ago, and less than 5% at the start of the year,
according to CME's FedWatch tool. 
    Changes in those expectations are likely to be the main
driver of day to day market swings in the coming weeks, just as
markets' daily churn during the first month of 2024 was all
about whether or not rate cuts would come in March. 
    The driver of the shift from March to May was Friday's data
that showed nonfarm payrolls increased by 353,000 jobs last
month, the largest gain in a year, and far higher than the
18,000 average of economists polled by Reuters. 
    "Crazy strong jobs number means Fed will wait" said James
Knightley ING's chief international economist, who does see a
cut in May. 
    Some think the Fed will hold on until June. HSBC's U.S.
economist Ryan Wang, who is in that camp, said: the "labor
market resilience may allow FOMC policymakers to be more
cautious and deliberate on the timing of any move." 
    Traders were also digesting the latest remarks from Fed
chair Jerome Powell who said in an interview that aired on
Sunday night that the Fed can be "prudent" in deciding when to
cut its benchmark interest rate. 
    The interview took place before the jobs report however, but
it did serve to underscore the trend -- higher bond yields and a
stronger dollar. 
    The benchmark 10-year Treasury yield rose to as high as
4.094% points in Asian trading hours on Monday, up around 6
basis points having finished Friday up nearly 17 bps. 
    Two-year yields jumped eight basis points to 4.451%, their
highest in a month, and that helped the dollar index to an eight
week high and weighed on U.S. stock market futures, last down
around 0.2%. 
    On the docket for Monday are the release of the senior loan
officer survey and ISM services activity data. 
    There is also plenty more Fedspeak to come this week, with
Bank of Atlanta President Raphael Bostic up later on Monday. 
    
    Key developments that should provide more direction to U.S.
markets later on Monday: 

    * Federal Reserve Bank of Atlanta President Raphael Bostic
speaks
    * U.S. January ISM services data 
    * U.S. earnings: Caterpillar, McDonald’s, Tyson Foods, Simon
Property
 


    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Nonfarm payrolls    https://reut.rs/42njhjA
Inflation gauges    https://reut.rs/3SspTsD
US 2-year Treasury yield    https://reut.rs/493c76G
Wage growth stronger than thought    https://reut.rs/48Z3KsP
Fed keeps key rates unchanged on first 2024 meeting    https://reut.rs/49j1c8z
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Reporting by Alun John; Editing by Ed Osmond)
 ((Alun.john@thomsonreuers.com))