Recent economic data fuels hope for recovery
- April 12, 2021
Client Relationship Management
Corporates | Denver, CO
Despite uncertainty caused by rising COVID cases and the possibility of new global variants, strong March nonfarm payroll numbers and continued vaccine progress have increased investor confidence, raising hopes there is light at the end of the tunnel.
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”)
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”)
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”)
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.
Chatham Hedging Advisors, LLC (CHA) is a subsidiary of Chatham Financial Corp. and provides hedge advisory, accounting and execution services related to swap transactions in the United States. CHA is registered with the Commodity Futures Trading Commission (CFTC) as a commodity trading advisor and is a member of the National Futures Association (NFA); however, neither the CFTC nor the NFA have passed upon the merits of participating in any advisory services offered by CHA. For further information, please visit chathamfinancial.com/legal-notices.
Transactions in over-the-counter derivatives (or “swaps”) have significant risks, including, but not limited to, substantial risk of loss. You should consult your own business, legal, tax and accounting advisers with respect to proposed swap transaction and you should refrain from entering into any swap transaction unless you have fully understood the terms and risks of the transaction, including the extent of your potential risk of loss. This material has been prepared by a sales or trading employee or agent of Chatham Hedging Advisors and could be deemed a solicitation for entering into a derivatives transaction. This material is not a research report prepared by Chatham Hedging Advisors. If you are not an experienced user of the derivatives markets, capable of making independent trading decisions, then you should not rely solely on this communication in making trading decisions. All rights reserved.21-0101
Our featured insights
Achieving automation and efficiency in treasury
Treasury teams can optimize the hedging and hedge accounting process through new technology tools and operating workflows. Whether improving exposure forecast visibility, achieving a faster close process, or improving platform integration, many opportunities exist for treasury to drive efficiencies.
U.S. April employment data disappoints amidst concern for inflation
The U.S. gained 266K jobs in April, falling significantly short of survey expectations of +1M jobs, while Treasury Secretary Janet Yellen indicated that interest rates may need to rise.
Continued recovery spurred on by key data
Persistent Fed policy, optimistic economic data, and the ongoing recovery from the COVID-19 pandemic buoyed investors about the U.S. economic recovery. Worldwide recovery from the pandemic causes the U.S. dollar to weaken. Commodity prices hit multi-year highs as supply outweighs demand....
Labor market momentum balances rising COVID-19 cases
Although the market was quiet in anticipation of the Federal Reserve announcement scheduled for Wednesday, markets reacted to strong employment numbers and increasing global COVID-19 cases. The dollar cooled off after a blistering start to 2021, while many commodity prices continued to rise.
Tumultuous first quarter culminates with a wave of buoyant optimism
After enduring Q1 volatility, including the GameStop frenzy and a severe spike in energy prices during the Texas freeze, the quarter wrapped up on a high note with the freeing of the Ever Given, the S&P 500 ending over 4,000, and blockbuster manufacturing PMI and March jobs reports.
The top 5 benefits of ChathamDirect’s approach to support and client success
ChathamDirect’s unique approach to client support enhances the solutions our clients depend on and ensures you enjoy consistently satisfying experiences whenever you engage with us.
A tale of two economies and bitcoin
In a week marked by the impeachment trial and stimulus talk, a few trends emerged among the large public companies reporting earnings, and Tesla’s foray into bitcoin will create more challenges for companies in managing forecast risk.
5 treasury trends to watch in 2021
To succeed in the 2021 marketplace, corporate treasurers must rethink their financial risk management objectives, strategies, and policies while addressing their team’s changing role within the organization. Recognizing these five trends can help treasurers prepare for success in the year ahead.