Fed Policy is Working – Non-Farms could be Key
Signs that the Fed’s tightening policy is now having its intended effect are starting to show in US data and recession fears are increasing. For the majority of the first quarter, US data was consistently coming in with stronger prints and this was increasing pressure on the FOMC to keep rates ‘stronger for longer’, however, in the last month we have seen a banking crisis hit the markets and US data is now showing signs of a slowing economy. This week we have seen lower-than-expected results in Manufacturing and Service PMI numbers as well as lower employment data and if this is backed up by lower Non-Farm Payrolls on Friday then the cracks could be really starting to show.
Nasdaq Drops Another 1% as Recession Fears Increase
US stocks markets experienced another mixed day yesterday with the Nasdaq taking the brunt of poor US data results closing down over 1%, the Dow finished up 0.24% and the S&P lost 0.25% on the day. Treasury yields slipped further, the benchmark 10-year back to lows last seen in September as the market prices in potential Fed cuts as early as July. The dollar gained some lost ground against the majors with the DXY pushing higher by 0.32% on the day and Gold maintained its higher levels still trading nicely above the $2000/oz level.
Volatility Into the Holiday Weekend
There are still six big trading sessions ahead of the real market close on Friday night, but many traders are already looking at packing up for a few days of R&R. That can sometimes spell trouble for markets in terms of liquidity and given the turmoil that we have seen in recent weeks added to some significant data release due out there maybe some aggressive moves in products in the next couple of days. Today is relatively quiet regarding tier 1 data releases with only the Canadian employment numbers coming out to trouble the scorers. However, the issue could kick in on Friday as many countries take a bank holiday and trading desks have skeleton staff numbers on deck. There is not much due out in the Asian and European sessions, but we have the crucial Non-Farm Payrolls data early in the US session and anything well outside the expected 236k increase could once again see the markets off to the races!
