FILE PHOTO: Oil rig pumpjacks extract crude from the Wilmington Field oil deposits area where Tidelands Oil Production Company operates near Long Beach, California
*************************
In anticipation of the U.S. non-farm payrolls report on an atypical first Friday of the month, investors find themselves navigating multiple market factors beyond employment data. Despite the pivotal focus on job figures, the backdrop is influenced by Brent crude oil surging above $90 a barrel, triggering a risk-off sentiment across global markets.
While the spotlight remains on the critical jobs data scheduled for release at 0830 ET (1330 GMT), Thursday’s significant declines in all three major U.S. stock indexes and a rally in Treasuries underscore a broader concern among investors.
The risk-off sentiment is largely attributed to Brent crude’s surge, sustaining its position above $90 a barrel amidst developments in the Middle East. Tensions are heightened as Israel prepares for potential retaliatory measures following Monday’s presumed air strike on an Iranian embassy in Syria.
This geopolitical backdrop has weighed on Asian and European shares, both experiencing around a 1% decline on Friday. However, futures for the S&P 500, Nasdaq, and Dow Jones suggest a more stable opening, although the S&P 500 remains down 2% for the week, marking its most significant decline since October if sustained.
Thursday’s market downturn also saw hawkish remarks from policymakers, including Neel Kashkari of the Minneapolis Federal Reserve Bank, hinting at potential interest rate cuts this year. However, geopolitical uncertainties and soaring oil prices pose challenges to the inflation fight.
Despite these factors, investors sought refuge in the 10-year Treasury yield, which dropped nearly 5 basis points amid the geopolitical tensions, reinforcing its status as a safe-haven asset.
PAYROLLS
In addition to the geopolitical and oil market dynamics, investors are eagerly anticipating the release of the U.S. non-farm payrolls report, which is expected to reveal a moderate slowdown in job growth for March, with approximately 200,000 new jobs added, while wage gains remain elevated.
Apart from the March figures, market participants are closely monitoring revisions to previous months’ data, as substantial changes have been observed in the past. Notably, Treasury yields experienced a decline last month following revisions in February’s report, which lowered January’s robust job addition from 353,000 to 229,000.
Friday’s data is also anticipated to reflect the unemployment rate remaining below 4% for an uninterrupted period of 26 months, marking the longest stretch since the late 1960s. This employment data holds significant weight, especially as investors are becoming increasingly apprehensive about the possibility of a rate cut by the Federal Reserve in June.
The uncertainty surrounding the Fed’s monetary policy decisions is reminiscent of previous instances, with both March and May previously viewed as potential starting points for rate adjustments. The outcome of Friday’s data and next week’s U.S. Consumer Price Index (CPI) release will play a crucial role in shaping expectations for June’s monetary policy stance.
This uncertainty could trigger market disruptions, particularly in Japan, where authorities’ warnings of direct intervention in currency markets to support the weak yen have prevented the dollar from surpassing the 152-yen level, viewed as a significant threshold by traders.
Currency analysts at the Commonwealth Bank of Australia note, “The risk is that today’s U.S. payrolls report pushes USD/JPY sharply higher, which in turn triggers an actual intervention from Japan’s Ministry of Finance.”
Key developments that should provide more direction to U.S. markets later on Friday:
* U.S. March non-farm payrolls
* Canada March jobs data
