SignalPlus Macro Analysis (20240506): Risk assets have a chance to start climbing slowly again
For the first time this year, employment data was lower than expected (no surprise increase), with an overall employment change of +175,000 (the previous average increase was around 275,000), and the unemployment rate also unexpectedly rising from 3.83% to 3.87%.
Other higher-frequency job market indicators are also beginning to show signs of a slowdown, such as the recent JOLTS report showing a lower ratio of job openings to the unemployed, and private sector hiring and quits at multi-year lows.
In addition, hiring trends among small businesses weakened significantly, with both the employment components of the ISM and PMI showing weakness, and the share of service and manufacturing firms hiring falling to levels typically seen in recessions.
Last Friday, we pointed out that the non-farm payrolls data was more likely to be dovish, especially considering that the Federal Reserve FOMC made it clear that they were increasing their attention to the weakening of the job market and were willing to ignore the recent inflation situation. Now that the employment data is indeed weak, the return of interest rate cut expectations to the market has triggered another wave of risk rebound.
Yields have seen a bullish steepness, with the 2-year yield falling from 5% to 4.8% and the 10-year yield returning to 4.5%, with the market pricing again predicting nearly 2 rate cuts this year. In the stock market, technology stocks rose 2%, the SPX closed above 5,100 points, and the USD/JPY fell from last week's high of 159 to 152.5 in 48 hours. All in all, market sentiment was boosted by the dovish interest rate backdrop, ending last week with a strong risk rebound.
This week's macro data will be relatively light, and the comments of Fed officials may be more important than the data itself. China will release money supply/financing data, while the United States will have Barkin, Williams, Kashkari, Jerrferson, Collins, Cook and Bowman take turns to express policy opinions. After a few weeks of risk cleansing, market positions should be cleaner than in March, and risk sentiment may have found a recent bottom, at least before the data begins to imply more "hard landing" risks. As investors continue to adjust their portfolios rather than sell stocks directly, the realized volatility of the SPX remains very low. Bloomberg reported that during the current adjustment, the leading stocks of the SPX have changed, although it is more like a rotation in the 'magnificient 7'. Risk assets are expected to have a chance to slowly climb from here.
Cryptocurrency is increasingly correlated with macro sentiment, as sentiment shifted back toward an accommodative Fed/lower forward rates/stronger equities, crypto prices rebounded sharply last Friday, with BTC spot price exceeding $64,000 over the weekend, despite weak spot gold performance. US ETF inflows were strong last Friday, reaching $378 million, and even Grayscale saw $63 million in inflows. In the current macro environment, we maintain our view that risk-reward has become more neutral, and expect short-term price corrections to be more favorable for buying on dips.
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