Non-Farm Payrolls for March were 426k, slightly lower than expected, but the previous month's figure was revised up to 750k. The unemployment rate fell to 3.6%, levels already close to those before the pandemic crisis and clearly in the full employment zone, which justifies a more aggressive action by the Federal Reserve at the May meeting. The market participants expect the Fed to increase interest rates by 50 bps.
This is what a large part of the Fed officials are saying due to the need to fight inflation and, above all, to avoid a spiral of salary inflation. The figure for average hourly earnings continues to rise, with the interannual number for March reaching 5.6 %.
Some Federal Reserve officials already point to the start of the Fed balance sheet reduction for next month, which should push up long-term Treasury bond yields and undo the inverted rate curve. It is considered that this inverted interest rate curve structure anticipates economic recession. However, there is no unanimity in this regard, and in any case, it is not something that could occur imminently. Furthermore, the growth and employment data remain strong, although the forecasts have been revised downwards.
It is true that where the economic slowdown is especially noticeable is in China, which published the manufacturing PMI data for March, revealing a figure of 48.1, below the growth threshold of 50. This fall could accelerate after the confinements in the Shanghai area, which will certainly harm economic growth.
And this is one of the reasons why oil experienced a notable drop throughout the past week and the US government’s decision to release 1M barrels of its strategic reserves. The International Energy Agency could also announce a similar measure later this week, adding more oil to the market.
Therefore, it can be said that oil continued to be under downward pressure. From a technical perspective, prices find support at the 94.70 area, a level that is now the first downside target below which it would make way towards levels around 85.
Sources: Bloomberg, Reuters.