Think Thursday
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Market Data
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Global
*Data as of 4pm WAT
Market News
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Market Commentary:
Currencies/Macro:
The US dollar index decreased by 0.5% today, influenced by a softer March ISM services report which led to USD sales. The EUR appreciated from 1.0764 to 1.0836, while USD/JPY saw fluctuations from 151.60 to 151.95 and back to its starting point.
The US services sector, as indicated by the ISM index, dropped to 51.4, below the expected 52.8 and previous 52.6, with a notable decline in prices paid from 58.6 to 53.4. The ADP report on private sector employment for March showed an increase of 184k jobs, exceeding the forecast of 150k and revising the previous month's figure from 140k to 155k.
Fed Chair Powell remarked that recent data have not significantly altered the overall economic outlook, stating it's premature to conclude whether the recent inflation figures are merely a temporary fluctuation. He acknowledged that risks are becoming more balanced but emphasized the need for further evidence of declining inflation before considering rate cuts. He also noted that, should the economy follow the anticipated path, the majority of the Committee members anticipate a rate reduction sometime this year.
In Europe, the preliminary CPI for March was reported at a 2.4% year-on-year increase, slightly below the expected 2.5% gain.
Interest Rates:
The US 2-year treasury yield initially increased by 4 basis points to 4.74% after stronger ADP payroll data but then decreased to 4.67% following the services ISM report and comments from Powell. The 10-year yield experienced fluctuations from 4.36% to 4.43% and then returned to its original level. The market's expectations for the Federal Reserve's funds rate, which is currently at a midpoint of 5.375%, remain unchanged for the upcoming meeting on May 2, with a 60% likelihood of a rate cut by June.
In the credit market, conditions were stronger until a late sell-off occurred in the US. Main improved by 1.5 basis points to 55, and CDX slightly tightened by half a basis point to 52, despite a late drift half a basis point wider. US IG cash remained stable to slightly improved by a basis point. In Europe, primary market activity resumed with 6 issuers pricing approximately EUR 3.75 billion (excluding SSA), with banks dominating the supply. In the US, 4 issuers managed to price USD 4.6 billion, with significant transactions including Engie’s USD 2 billion deal across 5, 10, and 30 years, and Anglo American pricing a USD 1.5 billion deal across 10 and 30 years.
Commodities:
As anticipated, OPEC+ ministers decided to maintain production cuts until the end of June, which propelled Brent towards $90 for the first time since October of the previous year. The May WTI contract increased by 0.48% to $85.56, and the June Brent contract rose by 0.58% to $89.44. The OPEC+ announcement was positively received as Iraq and Kazakhstan committed to full conformity and compensating for their overproduction. Additionally, it was mentioned that Russia's voluntary adjustment would be based on production rather than exports, with compensation plans due by April 30.
The EIA reported a larger-than-expected crude inventory build of 3.2 million barrels, but gasoline and distillate inventories fell significantly. East coast gasoline stocks are particularly tight, experiencing the most significant decline since March 2023, leading May NY gasoline futures to reach 8-month highs. The US Department of Energy canceled plans to purchase up to 3 million barrels of crude for the Strategic Petroleum Reserve, prioritizing taxpayer interests. Bank of America has increased its 2024 Brent forecast to $86 from $80, citing low oil stocks, OPEC+ cuts, geopolitical tensions, and robust economic growth.
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