Morning Brew April 5 2024

Good morning,

Fed Speakers actually spooked traders yesterday - or were at least used as excuse to take profits.

Especially when Neil Kashkari mentioned the possibility of no rate cuts at all this year, Equities Gold and Silver sold off, but rate traders did not change their stance at all. 10-year Yields are lower than yesterday and the traded ratees for year end see us 5 basis points lower than yesterday this morning. A full 3 cuts remain priced in.

Equities sold off broadly yesterday with all 3 big US Indexes more than 1% lower. The GER40 lost 200 points, the Nikkei app 2% to below 39k. All sectors lost but IT was the worst performer, AMD lost 8.3% and Nvidia 3.4%. Tesla could gain 2% against the trend.

Volumes were above average as was to be imagined.

FX traded quite nervously, partially driven by the Fed speakers, but also by the Bank of Japan, the USD Index traded as low as 103.90 yesterday and is now 104.30. Against the trend the JPY strengthened to 151.20 against the USD. EURUSD is 1.0822 and GBPUSD 1.2615. Silver dropped to 26.28 before recovering to 26.70, Gold is 2280 after 2267. Oil rose to 86 more on geopolitical worries. 

The nervousness in the markets will cast a special focus on todays Nonfarm Payroll, here a playbook:

• Data comes at 14:30 and the first glance will go to the headline number, that is expected to come at 200k.
• Second will be the unemployment rate and the average earnings expected at 3.9% and 4.1% increase in average earnings.
• The third but very important is the revision of last month’s number that was reported at a strong 275.

In recent months we have seen significant downward corrections of the initial data. I would expect that to have a significant impact on the reputation of this dataset in the medium term. For now, the Nonfarm Payroll remains a key input factor I the Fed`s strategy.

Besides the nonfarm Payroll the EU Retail Sales at 11 and the Canadian employment data will be watched but quite low on the list of priorities.

I believe the key will be any indication if the labor market confirms the hawkish fed speakers or if there is wiggle room to cut in June.

This will be key for short-term moves but a significant shift in the rate path, would have a larger impact on investors we well.

Consider your risk!

Erik