Recent economic data fuels hope for recovery

Economic outlook

As a positive sign of growing demand and a healing economy, March nonfarm payroll numbers came in significantly higher than expectations. The data revealed that the U.S. added 916,000 jobs in March, a figure that was up 269,000 from economist predictions. Marking a seven-month high, employment gains in March were especially strong among industries hit hard by the COVID pandemic, such as hospitality and leisure. The positive nonfarm payroll report was countered by a slight uptick in jobless claims for the week ended April 3, indicating a significant portion of the American population remains out of work.

Minutes from the March FOMC meeting were released Wednesday, giving investors additional insight into the Fed’s decision to continue purchasing $120 billion in bonds each month despite the rise in longer-term inflation expectations. During a recent virtual International Monetary Fund event, Federal Reserve Chairman Jerome Powell expressed confidence that forecasted inflation impacts will not be long lasting, remarking, “We think there will be upward pressure on prices which may be passed along to consumers in the form of price increases – we think that will be temporary.”

(Related insight: Read “Signs of economic expansion emerge while Powell holds steady”)

Vaccine statistics show around one third of Americans having received at least one vaccine dose. However, rising case numbers in certain areas of India, Brazil, and Europe caused increased concern around the possible spread of new variants.

In light of positive March nonfarm payroll numbers, the Fed’s stance on inflation expectations, and vaccine rollouts, investors have become comfortable taking on more risk and markets have reacted favorably. Equity markets strengthened, with the S&P 500 closing at 4,097 on Thursday, marking a record high. While the 10-year Treasury ticked down slightly last week, due in part to the recent rise in jobless claims, it remains close to pandemic highs around the 1.70% level.

(Related insight: Read “Managing interest rate risk on future debt issuances”)

Foreign exchange

As the U.S. continues to grapple with uncertainty over long-term inflation and a dovish monetary policy by the Fed, the U.S. dollar trended downward last week while several emerging market currencies rose. Despite rising coronavirus cases and deaths in Brazil, the real jumped 1% on Thursday while the South African rand increased 0.3% due to an increase in yields. Following Wednesday’s announcement from the National Bank of Poland that it would hold interest rates at current near-zero levels, the zloty strengthened by 0.3% as well.

(Related insight: Read “Building an FX hedging program from the ground up”)

Commodities

Crude oil prices remained relatively range bound last week, with WTI hovering just under $60 per barrel as positive economic data was offset by an uptick in COVID infections and the anticipated increase in overall crude oil production starting in May. Meanwhile, gold futures scored recent gains on the heels of U.S. dollar weakening and the dip in Treasury yields.

(Related insight: Read “Using commodity collars to manage market volatility”)

Looking ahead

All eyes remain on the state of the economy as U.S. inflation data for March will be released next week. Investors will also closely monitor March retail sales numbers published on Thursday, April 15.