4/5/24 – Four months of solid employment reports solidifies into Fed view of “no rush to cut rates”.
The Bond market continued to reprice the yield curve this week. Driven by economic data that showed the US economy is still firm despite higher interest rates. Manufacturing and Service surveys indicated expansion – the first such reading for Manufacturing since September of 2022. On Friday, the Non-farm payroll release created a seismic move in rates as the report showed 303,000 new jobs for the month versus expectations of +214,000. The 3-month average of job gains is 276,000 – eclipsing last year’s average gain of 242,000. The unemployment rate stood firm at 3.8%.
Fed members – tasked with reversing the Fed’s miscues of late last year, spoke ad-nauseum this week and the message was clear. The Fed is now in no hurry to cut overnight rates. Reflecting the Fed’s reversal, yields on US Treasury Notes and Bonds rose in response – closing the week higher and the yield curve steeper. 2 year Note yields rose 10 bps to close the week at 4.73%, while 5s and 10s closed the week higher by 15bps and 17bps respectively. The yield curve is flat between 5 and 10-year maturities with both Notes yielding 4.37%.
Fed Fund futures are now pricing in 90% chance of a total of 75bps cuts by year end. Fed fund futures indicate the market is expecting overnight rates to be 4.33% by May 2025.
Next week brings inflation readings at both the consumer level and the producer levels with the CPI released on Wednesday and PPI released Thursday. Next Friday closes with the University of Michigan survey’s – we will be watching for any economic impact of rising oil and gas prices on inflation expectations as well as for hints as to the shape of the consumer heading into the summer months.
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