US Markets Rally as Strong April Employment Data Eases Recession Concerns

Ozge Gurses
| May 8, 2023

Following stronger-than-expected April employment data in the United States on Friday, stock indices closed the day with gains as recession concerns eased

Following stronger-than-expected April employment data in the United States on Friday, which alleviated recession concerns, Wall Street indices closed the day with gains. The Dow-Jones Index (INDEXDJX: DJI) is up 1.65%, the Nasdaq-100 Index (NDX: USN) is up 2.25%, and the S&P-500 Index (SPX: USY) is down 1.85%.

The US Dollar Index (DXY) closed last week with a 0.4% decrease at the level of 101.2.

Brent Crude Oil (LCO07: USC) closed the week at $75.3 per barrel, with a 6.3% decline due to renewed concerns over medium-sized banks in the United States.

The US 10Y Treasury yield closed with a 1 basis point increase at 3.44% while the US 2Y Treasury yield, which is more sensitive to monetary policy developments, closed down 10 basis points at 3.93% last week.

On Friday, key employment data including non-farm payrolls, the unemployment rate, and average hourly earnings were released in the United States.

In April, non-farm payroll employment in the United States increased by 253,000, surpassing expectations of 185,000 and indicating a faster pace compared to the downwardly revised figure of 165,000 from the previous month’s report. This indicates that non-farm employment growth accelerated despite expectations of a slowdown.

The unemployment rate in the United States was expected to slightly increase from 3.5% to 3.6% in April but declined to 3.4%, reaching its lowest level since 1969. The number of unemployed individuals decreased by 182,000 to 5.66 million, while the number of employed individuals increased by 139,000 to 161 million. The labor force participation rate in the United States remained unchanged at 62.6%.

Looking at average hourly earnings in the United States, which is a crucial factor for inflation, the monthly growth rate increased from 0.3% to 0.5% in April, surpassing expectations of a 0.3% increase. This marks the highest level of growth in hourly earnings over the past nine months. On an annual basis, the growth rate of hourly earnings rose from 4.3% to 4.4%, indicating continued inflationary pressures stemming from wages.

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In the United States, the focus of the markets will be on the CPI and PPI figures for April

In the United States, key data to closely monitor in terms of influencing the Federal Reserve’s monetary policy will be the Consumer Price Index (CPI) for April on Wednesday and the Producer Price Index (PPI) for April on Thursday. In March, the monthly growth rate of headline CPI slowed from 0.4% to 0.1%, surpassing expectations of a 0.2% increase. The annual growth rate also declined from 6% to 5%, surpassing expectations of 5.1%, reaching its lowest level since May 2021.

As for the core CPI, which excludes food and energy prices, the monthly growth rate in March slowed from 0.5% to 0.4%, in line with expectations. The annual growth rate increased slightly from its lowest level since December 2021, 5.5%, to 5.6%, aligning with expectations.

In March, the headline PPI unexpectedly recorded a 0.5% decrease, contrary to expectations of a flat growth rate. This monthly decline was the sharpest since April 2020, and the annual growth rate declined from 4.9% to 2.7%, reaching its lowest level since January 2021. Expectations were for a decline to around 3% on an annual basis.

On Thursday, the weekly initial jobless claims in the United States will be monitored. On Friday, alongside that, the preliminary consumer sentiment index for May from the University of Michigan, which is an indicator of consumer confidence, will be followed.

Additionally, throughout the week, speeches by Federal Reserve members will be closely monitored for possible new signals regarding the Fed’s monetary policy.

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In Europe, Industrial Production in Germany, and the Euro Area Sentix Investor Confidence will be followed.

In Europe, the industrial production in Germany for March will be followed on Monday. In February, industrial production in Germany recorded a 2% monthly increase, signaling a positive trend in production for the second consecutive month.

The investor confidence index for May in the Euro Area, also known as the Sentix investor confidence, will be monitored on Monday. The investor confidence index for April partially recovered from -11.1 to -8.7, reaching the highest level in the past 13 months but still indicating weak performance in the negative territory.

Furthermore, inflation data that will also influence the European Central Bank’s monetary policy, specifically the final Consumer Price Index (CPI) in Germany for April, will be followed on Wednesday.

On Friday, the preliminary GDP growth rate for the United Kingdom for the first quarter of this year will be released. The UK economy experienced a slower growth rate of 4.1% throughout 2022, following a record growth rate of 7.6% in 2021. It is expected that the UK economy will show limited growth of 0.1% on a quarterly basis and a slowdown in the annual growth rate from 0.6% to 0.2% for the first quarter of this year.

On Thursday, the interest rate decision of the Bank of England (BoE) will be followed. In its March meeting, the BoE increased the policy rate by 25 basis points to 4.25%, in line with expectations, signaling a slowdown in the pace of interest rate hikes. The market expectation is for the BoE to raise the policy rate by 25 basis points to 4.50% in this week’s meeting, considering the impact of higher-than-expected inflation and unexpected wage increases.

Consumer Price Index (CPI) and Producer Price Index (PPI) for April in China will be tracked

In Asia, on Thursday, the Consumer Price Index (CPI) and Producer Price Index (PPI) for April in China will be followed, providing signals about the global inflation trajectory. In March, the CPI in China declined by 0.3% on a monthly basis, driven by the slowdown in food and non-food prices, extending its decline for the second consecutive month (expectation: 0.2% increase). On an annual basis, the CPI decreased from 1% to 0.7%, reaching its lowest level since September 2021 (expectation: 1% increase).

Additionally, on Tuesday, China’s foreign trade figures for April will be published.

Source: EquityRT MacroAnalytics

Disclaimer: The information in the publication is not an investment recommendation and it is not an investment or an offer or solicitation to purchase or sell any financial instrument. Reasonable care has been taken to ensure that this publication is not untrue or misleading when published, but EquityRT does not represent that it is accurate or complete. EquityRT does not accept any liability for any direct, indirect, or consequential loss arising from any use of this publication. Unless otherwise stated, any views, forecasts, or estimates are solely those of the author, as of the date of the publication and are subject to change without notice.

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