Investors have started the week digesting Good Friday’s employment data. The main attractions this week will be inflation data out of the US and the first batch of quarterly corporate earnings.

Bond yields were stable last week, with the US 10-year yield hovering around 3.40% and the German equivalent at 2.27%.

In the US, manufacturing activity contracted further in March. The ISM manufacturing index slipped to 46.3 from 47.7 in February, marking the fourth consecutive month of contraction. Factory orders for February fell for the second month in a row, this time by -0.7%, due mainly to a drop in demand for civil aircraft. Economists had expected a decline of 0.5%.

In addition, growth in service sector activity slowed more sharply than expected. The ISM services index dipped to 51.2 in March versus 55.1 in the previous month and the forecast of 54.5. The service sector new orders sub-index also fell sharply to 52.2 from 62.6 in February.

The jobs report showed that the US labour market remained robust, although job creation slowed from the previous month, with 236,000 jobs added compared with 326,000 in February, and an unemployment rate at 3.5% versus 3.6% previously. Wage growth was a modest 0.3% in March, up from +0.2% previously.

While these data suggest that the Fed’s policies are starting to pay off, they also fuel expectations for a further 25bp rate hike in May, as most investors are forecasting.

In Europe, the composite PMI index showed unbroken growth in economic activity, thanks to a rebound in demand in March. Growth was driven by the services sector, whose activity index rose from 52.7 in February to 55 in March.

In China, consumer price growth slowed in March to 0.7%, down from 1% in February, despite a recovery in domestic economic activity. Producer prices fell by 2.5% in March, in line with expectations. These figures suggest that domestic demand remains weak despite the reopening of the economy after the pandemic.

This week will provide more clues on US inflation in the form of producer and consumer prices, and it will also mark the start of reporting season, with luxury majors such as LVMH and Hermès reporting first followed by US banks.

Source: Bonhôte

If you have any questions please contact the office on (03) 9670 6070.