Friday's Markets Update (May 3, 2024)

03 May 2024 by rate3

On Friday, an unexpected increase in the unemployment rate, combined with a significant slowdown in the services sector, led to a large upward gap in the stock market at the opening. Globally, the UK market reached an ATH, and Hong Kong indexes surged on hopes of China's revival. BTC led the crypto market with an increase of more than 7% due to a sudden resurgence in stocks. ETH, Polkadot, Solana, and Polygon each rose by about 4%.

Details

There were 175K jobs added in April, a sharp slowdown from March (315K). Healthcare and social assistance led job growth. This is less than economists expected and trails the average monthly gain over the past year (242K). (BLS)
Unemployment rate rose to 3.9% in April from 3.8%, exceeding expectations. Average hourly earnings for all employees on private nonfarm payrolls have increased by 3.9% over a year in April, following a 4.1% rise in March and slightly below market estimates of a 4% increase. It was the slowest growth in average hourly earnings since June 2021. (BLS)
Private sector grew at a slower pace in April compared to March (51.3 vs 52.1). Service sector grew at its slowest pace in 6 months. Manufacturing stalled. New orders fell and employment dipped for the first time in years. Despite this, business output continued to expand slightly. Prices rose but at a slower rate, and business confidence softened a bit but remained optimistic for the next year.(PMI)
In April, the ISM Services PMI fell to 49.4, signaling the first decline in activity since December 2022 and missing market forecasts (52). This was the second decrease since the pandemic in 2020 and may be linked to Fed borrowing costs. Slower growth in new orders and production resulted in layoffs. Rising prices, driven by increased expenses for chemicals, metals, fuels, and food, highlighted the extensive inflationary pressures affecting the economy. (ISM)

Crypto

Hong Kong's spot crypto ETFs saw a trading volume increase on May 3rd (total: HK$48.91M, ETH ETFs: HK$5.5M; BTC ETFs: HK$43.41M), but it's dwarfed by the US market. While Bitcoin ETFs led the way in Hong Kong, their daily volume is far below what's seen in the US (almost $1.72B on May 2nd). Analysts are cautious about future growth due to Hong Kong's smaller market size, restrictions on mainland China investors, and less competition compared to the US. Investors used to lower fees in the US might also be discouraged by Hong Kong's higher costs. (source)

World Markets

Eurozone unemployment remained at a record low of 6.5% in March YoY (6.6% previous). Youth unemployment also fell to 14.1%. Spain has the highest jobless rate at 11.7%, while Germany enjoys the lowest at 3.2%. (EC)
Hong Kong's Hang Seng index extended its winning streak to nine days, the longest since 2018. It closed up 1.5% on Friday, fueled by positive futures and hopes of China easing housing regulations.
UK FTSE 100 surges to a new ATH (8236) on positive corporate news and hopes of a sooner Fed rate cut. Anglo American jumps on takeover rumors.
Brazil's industrial production fell 2.8% in March compared to a year earlier (+5.4%), marking the first contraction since July 2023. This is below market expectations of a 2.6% drop. (IBGE)
Turkey's inflation hit a 16-month high of nearly 70% in April, driven by rising costs in housing, transport, and many consumer goods. Food inflation slowed slightly, but overall price increases remain high. The core inflation rate also edged up.

Currencies

Jobs data triggered a dollar sell-off (the index dropped to 104.6). The weaker numbers led investors to believe the Fed will cut rates sooner, in September instead of November.

Commodities

The FAO's food price gauge ticked up slightly in April despite YoY decline. This rise was driven by higher meat (up 1.6%) and vegetable oil (up 0.3%) prices, while cereals and dairy products saw small decreases. (FAO)

On Week 12, a few macroeconomic data is issued with focus on consumer confidence and Fed talks. Big companies like Disney and Shopify report earnings. Globally, interest rate decisions and economic data dominate, with China and Europe in the spotlight for PMI readings, inflation, and trade figures.

Comment: 2%?

Powell aims for low inflation around 2% and economic growth at 2-3%. However, achieving this may be challenging given current economic realities.

For over 30 years, the global expansion of US corporations and economic growth relied on the weaknesses of currencies in Asia, Latin America, and Africa. This allowed the US treasury to print money and export inflation. However, this dynamic has changed.

In the present circumstances, Powell's goal of 2% inflation may only be possible if the economy enters a recession, resulting in stagnation or even deflation.

While factors like cheap labor from Mexico have helped in the past, geopolitical tensions and shifts in global manufacturing may impact future pricing dynamics.

If Powell continues to prioritize a 2% inflation target, it could lead to stagflation, where economic growth is limited by rising prices.