By Michael Brown, Senior Research Strategist at Pepperstone
DIGEST – Trade has been tentative in recent sessions amid a swathe of holiday closures, despite a plethora of catalysts including the March jobs report, and nonstop geopolitical news flow. Conflict in the Middle East remains in focus today, as Trump’s Iran deadline looms large.
WHERE WE STAND – Right then, back to the grindstone after a four-day weekend.
I’d wager, though, that few market participants really managed to switch off over Easter, not least considering that we had the March jobs report released on Good Friday; President Trump calling on Iran to “open the fing Strait” on Easter Sunday; and Trump again stealing the limelight yesterday, amid countless further comments on Iran.
Let’s take those in turn, as the jobs report does warrant some attention, despite it being entirely overshadowed by goings-on in the Middle East.
In short, it was another report where the ‘headline for show, details for dough’ moniker springs to mind. Yes, headline nonfarm payrolls did rise by +178k last month, in the biggest MoM increase since December 2024. However, not only was hiring relatively narrow once again – Healthcare added +90k, and weather-sensitive sectors such as Construction & Transportation rebounded strongly after February’s cold snap – but the 2-month net revision of -7k leaves the 6-month average of job gains at a dismal +15k, hardly anything worth popping the champagne about.
The same rings true for the household survey. Yes, unemployment fell to 4.3% in March – actually, 4.256% on an unrounded basis, a 19bp fall from the prior reading – however, this was entirely driven by the labour force having shrunk, as evidenced by participation plumbing new cycle lows at 61.9%. Essentially, unemployment is declining as people give up on trying to find work, as opposed to a surge in hiring.
Altogether, I’d argue that data of this ilk would, ordinarily, argue for the Fed to take further steps to remove policy restriction, as the ‘slow hire, slow fire’ labour market could clearly use a degree of assistance. The ongoing energy price shock, amid continued conflict in the Middle East, though, obviously prevent the FOMC from easing at this juncture, and probably will for the next few months at least, even if I still expect a couple of cuts to be delivered in the second half of the year.
On the subject of geopolitics, besides Trump’s expletive-laden social media posts, focus now falls on the 8pm ET deadline tonight which Trump has set for a ‘deal’ to be agreed with Iran, and Hormuz to be re-opened, else power plants and bridges in Iran will be targeted by US strikes. Thus far, there seems to have been little by way of concrete progress made towards a ceasefire, amid reports yesterday that Iran had rejected the US’ proposal for a 45-day truce, instead seeking a ‘permanent’ end to the war.
Of course, given the ‘flexible’ nature of recent deadlines of this ilk, as well as Trump’s penchant for an ‘escalate to de-escalate’ negotiating strategy, the proverbial can being kicked down the road – again – can’t be ruled out on this front.
As for markets, I’d argue that it’s folly to try and extract too much signal from a couple of days of very thin holiday trade. That’s just as well, really, given that most major markets haven’t really gone anywhere especially quickly since we all left for the long Easter weekend, with stocks, bonds, FX, and metals all largely treading water, even as crude benchmarks have continued to grind slowly but surely higher.
Looking forwards, it seems likely that relatively cautious tones will continue to prevail unless and until concrete steps towards de-escalation begin to be taken, with the dollar still being the only haven that ‘works’, and energy prices likely continuing to grind higher as supply continues to tighten by the day.
For stocks, while it’s clearly too soon to sound the ‘all clear’ just yet, the market has adopted a notably more positive tone over the last week or so, probably a reflection of the fact that, while a ‘deal’ might still be some way off, we do at least look to be moving towards, not away, from such an agreement. With that in mind, I’d be increasingly inclined to be buying dips here and, barring any material re-escalation in the conflict, wouldn’t be surprised if the 6,350 lows in spoos last week do indeed mark the low for this sell-off.
LOOK AHEAD – It remains the case that geopolitical developments will be the main focus for market participants over the remainder of the holiday-shortened week.
Still, the calendar does provide a few items of intrigue. On the data front, Friday’s US CPI figures are likely to be of most interest, with headline inflation seen jumping to 3.4% YoY in March, almost entirely as a result of the recent surge in energy prices, though core inflation is also set to tick 0.2pp higher to 2.7% YoY. Elsewhere, we also receive the final read on Q4 US GDP, as well as the preliminary April UMich consumer sentiment print, where the inflation expectations component will be the primary focus, and last month’s Canadian jobs report.
Besides that, a chunky week of long-end Treasury supply awaits, with 10- and 30-year auctions tomorrow and Thursday, respectively, where some risk does present itself after the dismal manner in which front-end supply was taken down a few weeks ago. on the policy front, the RBNZ should stand pat overnight, while minutes from the March FOMC meeting are likely too stale to offer much by way of fresh guidance.
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