Weekly house view | Payroll eclipse

The week in review

Last week was an unsettled one for markets rattled by geopolitics and doubts about the timing and extent of Fed rate cuts. The S&P 500 returned -0.9% on the week (in USD)ⁱ and the Stoxx Euro 600 -1.2% (in euros)ⁱⁱ, although last month’s decline in inflation is making it easier to predict that the ECB will cut rates by June. Chinese equities rose on the week, thanks in part to business activity figures that suggested an improvement in economic momentum. Further flare-ups in the Middle East pushed commodity prices up, while the search for safe havens benefited gold prices. Government bond markets remained volatile, with another strong nonfarm payrolls report (although wage growth slowed) pushing back markets’ expectations for Fed rate cuts and pushing up Treasury yields. US corporate bonds reflected the unsettled atmosphere, with noteworthy widening of spreads for noninvestment-grade credits. A drop in Swiss inflation to 1% that paves the way for another Swiss National Bank rate cut meant that the Swiss franc continued to lose ground.

Quote of the week

“We do not expect that it will be appropriate to lower our policy rate until we have greater confidence that inflation is moving sustainably down towards 2 percent.”

— Fed Chair Jay Powell said at Stanford University.

Key data

March US nonfarm payrolls rose 303,000, once again higher than expected and up from 270,000 in February. The unemployment rate fell 0.1% to 3.8%. Average hourly wages rose at an annual rate of 4.1% in March, the slowest rate since June 2021.

The ISM purchasing manager index (PMI) for US manufacturing rose strongly from 47.8 in February to 50.3 in March, the first time that manufacturing activity has expanded in 16 months. The ISM for services dropped to 51.4 in March from 52.6 in February, but still indicated a 15th straight month of expansion in business activity.

Headline consumer inflation in the euro area declined to an annual 2.4% in March from 2.6% in February (and a peak of 10.6% in October 2022). Core inflation (excluding food and energy) fell to 2.9% from 3.1%. Swiss headline inflation fell to 1% in March, its lowest rate in two and a half years.