US Manufacturing Data Shows Expansion to Start Q2
In March 2023, the United States' ISM Manufacturing PMI rose to 50.3, improving from February's 47.8 and surpassing the anticipated figure of 48.4. A PMI reading greater than 50 indicates expansion. This print heralds the manufacturing sector's first growth following a 16-month period of decline.
After Friday's PCE data release which was in-line with expectations, the market remained in expectation of three rate cuts this year. However, with the strong Manufacturing PMI print, expectations dropped to less than three cuts. Reduced expectations for rate cuts was a downdraft for U.S. equities through Monday trading.
Oil Prices Rise with Reanimated Geopolitical Risk
Reports of an Israeli military strike which killed a top ranking Iranian general stoked concern for oil supply coming out of the Middle East. The act of aggression drew immediate condemnation from Iran along with promises for retaliation. The Russian U.N. ambassador castigated the attack on a diplomatic site.
The attack resulted in the deaths of Gen. Mohammad Reza Zahedi, who held command of the Quds Force of the Iranian Revolutionary Guard in Lebanon and Syria up to 2016, his second-in-command, Gen Mohammad Hadi Hajriahimi, and five additional officers. Additionally, a Hezbollah affiliate, Hussein Youssef, was killed. It is unclear gow the Iranian response will materialize, and concerns for wider conflict remain.
U.S. Job Openings Fractionally Higher
February job openings increased by 8,000 from the previous month to 8.756 million, slightly higher than market expectations for 8.75 million. Market participants would like to see more softening in the labor market since such a development would be one factor driving the Fed to cut interest rates.
Private Jobs Data Comes in Strong
In March 2024, US private sector companies added 184,000 employees, surpassing the revised February figure of 155,000 and exceeding expectations of 148,000. Chief economist at ADP, Neal Richardson, indicated the company sees wage increases in both the services and goods sectors. This print marks the most significant growth in employment seen in eight months; it along with the information on wages is another data point suggesting the labor market remains strong.
Earthquake in Taiwan, Warning Shot to Global Semiconductor Supply Chain
The strongest earthquake in 25 years struck the island nation of Taiwan on Wednesday. The epicenter of the earthquake centered on the eastern edge of the island opposite the more heavily populated and industrial West. TSMC's network of chip fabrication infrastructure on the western side of Taiwan is some of the most sophisticated and important manufacturing space on the planet. Although this week's earthquake did not disrupt production for more than a few hours, it should stand as a sobering warning to all market participants. The island of Taiwan sits along the western edge of the Ring of Fire, a tectonically active geographic formation on both sides of the Pacific. The elite infrastructure on the island is the beating heart of the global economy due to its steady production of the most technologically advanced chips in the semiconductor industry. Look no further than the supply chain disruptions during the pandemic that led to shortages of all manner of consumer goods from automobiles to personal electronics. Natural disasters of the sort that occurred this week have the ability to threaten global economic stability due to the precarious geography at play on both sides of the Pacific. Not only is there risk in East Asia; Silicone Valley lies on the eastern edge of the Ring of Fire.
ISM Services Data Provides Mixed Update on the Trajectory of the U.S. economy
In March 2024, the ISM Services PMI decreased. The print of 51.4 was lower than February's 52.6 and undershot the anticipated 52.7 mark. This marked the slowest pace of expansion in the service sector for a period of three months. The market seemed to digest the 10:00 AM EST soft services data well because it was a data point in support of Fed rate cuts sometime this year. When Federal Reserve Chairman Powell spoke just after noon on Wednesday, the market was reassured once more the Fed is planning three rate cuts this year.
The slowdown was attributed to moderated growth in new orders, continued decline in inventories, and quicker supplier deliveries. Furthermore, the ISM report detected a contraction in employment noting specifically challenges in refilling vacancies and managing wage costs. Conversely, there was a noticeable uptick in business activity / production and new export orders.
Initial Jobless Claims Obviously Higher in March
United States Department of labor data released on Thursday showed the number of people filing for unemployment benefits surged to a weekly high not seen since January. This weekly data update is likely to be interpreted as one small, initial step toward a softening labor market as a result of high interest rates. The report runs counter to data released earlier in the week suggesting a robust labor market.
Friday Payroll Data Comes in Very Strong
Thursday SPX price action was initially positive after an open in the green; however, an aggressive sell off began after 1 PM EST as markets began to fret about impending Friday payroll data coupled with some Fed speak rattling nerves about potentially less than expected interest rate cuts through the remaining months of 2024. Markets received the new payroll data before the Friday open. The U.S. economy added an outstanding 303k jobs in March, and the unemployment rate dipped back to 3.8%. Markets seemed to take the strong print in stride as the S&P 500, DJI, and NASDAQ all posted strong gains through Friday trading. However, the bull market off the October 2023 lows seems to be moderating as shown in the chart.
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