As it stands, that negative base effect from the post-Ukraine invasion period last year remains heavy on headline inflation and its core prices excluding energy that are now the focus for most central bankers. And there was a sliver of good news on that latter front for the Federal Reserve on Friday. The mild reaction in the rates and bond markets to the OPEC move reflects some of that. While the futures market still sees about a 65% chance of one last Fed hike next month, almost half a point of rate cuts before yearend remains in the price. Two and 10-year Treasury yields were little changed from Friday's levels.
Asia and Europe's main stock indices were steady to higher, with S&P500 futures only marginally in the red ahead of Monday's open. The VIX volatility index was a touch higher, though still below 20, and the dollar was up smartly. The extent the OPEC move may have been a panicky response to signs of falling global demand was underlined by dour March factory readings from across the world. China's sprawling manufacturing sector, accounting for a third of the world's second-largest economy by value, lost significant momentum in March - casting further doubt on the strength of its recovery from restrictive COVID-19 policies. The Caixin/S&P Global manufacturing purchasing managers' index teetered back on the 50 dividing line between expansion and contraction again in March. Economists at ING, for one, downgraded China's GDP growth forecast to 3.8% year-on-year for the first quarter from 4.5% growth,
The news wasn't any better from still-contracting euro zone and manufacturing last month, where the downturn deepened from February even if a touch above preliminary readings. Equivalent UK surveys also showed deterioration last month and U.S. ISM soundings are due later in the day. Morgan Stanley's cross-asset strategists point out that U.S. stocks and bonds are starting to move in opposite directions again after the banking stress of the past month, with equities and debt yields moving in tandem as they both price recession risks from here rather than solely second-guessing Fed moves.
But with service sectors doing much better, much of the
attention now shifts to still-tight U.S. labour market and the
March national employment report on Friday. Some cooling in the
pace of job creation and average earnings is expected but the
unemployment rate is expected to remain low at just 3.6%.
Complicating the reaction to the key jobs report - now
critical to the Fed's "data dependent" outlook from here after
the March banking shock - is the onset of Easter holidays in
Europe that will see London markets closed for the publication.
That perhaps puts a touch more weight on other measures of
the labour market out earlier in the week, such as updates on
job openings, layoffs and the ADP private sector employment cut
on Wednesday.
Elsewhere, Tesla posted record quarterly vehicle
deliveries, but its stock was down 2% ahead of the bell as
quarter-on-quarter sales growth was modest despite price cuts.
Burger chain McDonald's is temporarily closing its U.S.
offices this week as it prepares to inform corporate employees
about its layoffs as part of a broader company restructuring,
the Wall Street Journal reported.
In politics, former U.S. President Donald Trump is set to
fly from Florida to New York City on Monday ahead of his
scheduled arraignment related to hush money paid to a porn star
before the 2016 election.
Key developments that may provide direction to U.S. markets
later on Monday:
* U.S. March ISM manufacturing survey, Feb construction spending
* U.S. Federal Reserve Board Governor Lisa Cook speaks; European
Central Bank Board Member Elizabeth McCaul speaks
* OPEC monthly meeting
* Ex President Donald Trump flies from Florida to New York ahead
of scheduled arraignment
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Surprise OPEC production cuts Brent crude price still lower year till date China's March factory activity falters - Caixin Fed's preferred inflation gauge eases ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
(By Mike Dolan, editing by Ed Osmond,
mike.dolan@thomsonreuters.com. Twitter: @reutersMikeD)
