Last Friday's strong non-farm payrolls data once again showed the tenacity of the U.S. job market. The overall data was significantly better than expected (303,000 vs. the expected 214,000). The previous value was revised up by 22,000, causing the 3-month average to reach + 276,000, the unemployment rate fell to 3.8% from a short-term increase in February, while the average hourly wage increased from 0.2% to 0.3% month-on-month, and the education, health, leisure, hotel and commodity sectors all showed strong performance.
Employment data continues to show resilience, and the recent global PMI index has also been better than expected. In addition, rising commodity prices have brought renewed pressure for inflation, which seems to have brought considerable challenges to Powell's dovish turn. Fed officials have also raised some hawkish objections:
Richmond Fed's Barkin: Acknowledged that "the employment report was quite strong" and that "time should be allowed for uncertainty to dissipate before cutting rates."
Director Bowman: "There are many upside risks to inflation" and the Fed's progress in pursuing its inflation target has "stagnated."
Dallas Fed's Logan: It's "premature" to cut interest rates now because there are "significant risks" to the inflation process.
Minneapolis Fed's Kashkari: "If inflation continues to stagnate, it would make me question whether we need to cut rates (2 times)" "If our growth is very attractive, people have jobs, businesses are doing well, inflation is coming down, then why do it?"
As commodity prices soared, even the Wall Street Journal published an opinion piece titled "What if the Fed is Wrong?" Will the Fed's consensus see some long-awaited disagreements and pressures?
At the same time, commodity prices soared, posting their biggest weekly gain in nearly a year. In addition, investors began to consider the risk of runaway inflation caused by the Fed's return to its old "loose money" mode. As yields rose, the long-term inflation premium also rose sharply.
The probability of a rate cut in June remains around 60%, and the US Treasury yield curve has been showing a bearish steep trend, with the 10-year yield gradually approaching 4.50%. However, unlike the third quarter of last year, this time it happened against the backdrop of significantly lower interest rate volatility, indicating that investors are less worried about balance sheet accidents caused by interest rates (such as the UK mini-budget crisis in the past, held-to-maturity portfolio losses, etc.).
However, implied interest rate volatility is falling, suggesting that investors are more optimistic this time around about the risk of a “balance sheet accident” from higher rates.
As investors became more optimistic about interest rate risk, stocks were able to rally on rising yields (+ 9 bps last Friday), proving once again that equity investors are impeccably bullish in any scenario (bad news = rate cuts, good news = good news), keeping the risk-on party going at least until the CPI data later this week.
In crypto, prices have rebounded somewhat, with BTC approaching $70,000 again. Many leveraged long futures positions were liquidated last week, and funding rates have returned to long-term normal levels.
Meanwhile, a dovish Fed and rising commodity prices have kept gold prices close to all-time highs and continue to maintain its long-term correlation with BTC. Spot ETFs resumed net inflows, adding $203 million of funds last Friday, bringing net inflows to $12.6 billion year-to-date.
