US Stock Markets Drift in First Trading Day of the Month – Dow down 0.6%
US stocks fell on the first day of the month and quarter after data show US factory activity unexpectedly expanded in March for the first time since September 2022 on a sharp rebound in production and stronger demand, while input costs climbed. The dollar index jumped as the greenback rose against all major currencies, fuelled higher by rising Treasury yields as traders were now repricing the amount of Fed easing into swap contracts for this year.
After notching up its fifth-straight month of gains, the S&P 500 closed 0.2% lower to 5243 with the Dow Jones index finishing down 0.6% to 39566. Dollar-yen rose as high as 151.77 in New York before closing up 0.2% to 151.64 with investors considering whether the macro backdrop is now strong enough for spot to breach 152 and possibly force the hand of Japan’s Ministry of Finance and their desire to support the yen. Aussie dollar touched 0.6480 to test the 0.6478 low hit in March with trendline support off the October low now all but broken.
US Data Remains Strong into April
US manufacturing ISM rose 2.5 points to 50.3 in March, according to data released Monday. Although just a smidge above the level of 50 that separates expansion and contraction, it was enough to halt 16 straight months of shrinking activity. Consequently, markets now only see only about 65 basis points of Fed easing by year-end, less than that forecast (75bps) by the Federal Reserve at its last FOMC meeting. It now looks as though the Fed’s first-rate cut may arrive in 2H after all, with chance of a rate cut in June becoming more of a coin toss.
Commodities Push Higher – Gold another New High
Oil had a good day as prices jumped amid tightening supplies at Cushing Oklahoma storage facility which saw inventories fall 720,000 barrels last week. Futures rolls added to the demand, traders said. West Texas Intermediate Crude traded at a premium of $1.50 a barrel Monday, the highest level since early March, traders said. The WTI cash roll traded outside of its usual window, implying that inventories at the storage hub are unexpectedly low. The spot contract rose 68 cents or 0.8% to $83.85.
Gold skipped to another fresh high of $2265 before giving back more than half its intraday gain after the US manufacturing data intensified debate that the Fed may cut just two times this year compared to the previously held view of three cuts. Lower rates are typically positive for gold, which doesn’t pay interest. For what it’s worth JPMorgan Chase & Co. said last month that gold was its number one commodity pick and sees scope for $2,500 an ounce this year. Goldman Sachs sees potential for $2,300 amid a lower interest-rate environment.
Into early Tokyo and USD/JPY is steady at 151.64 with AUD/USD little changed at 0.6488. Dow Jones futures are 0.3% lower with S&P 500 index and the tech heavy NASDAQ futures both off 0.1%.
Throwing forward, Fed chair Jerome Powell speaks on Wednesday and in wake of Monday’s strong data may dial back on his supportive references to the US jobs market made last week. Otherwise, he runs the risk of heightening too much focus on Friday’s jobs report where economists expect to see that employment gains continued in March while wage growth moderated, indicating the nation’s labour market is poised to keep stoking the economy with limited risk of an inflation resurgence. This is a good backdrop for stocks to outperform bonds and the US dollar to remain bid.
