A robust employment report has suppressed expectations for interest rate cuts, putting pressure on the U.S. Treasury market and strengthening the U.S. dollar. Due to a holiday, the U.S. stock cash market was closed for the entire day. U.S. non-farm payrolls increased by 178,000 in March, surpassing market expectations, while the unemployment rate unexpectedly declined. Because of the Good Friday holiday, U.S. stock markets and most major markets were closed on Friday, with the U.S. Treasury market operating for only a half-day. Following the data release, the yield on the interest-rate-sensitive 2-year Treasury note rose by 6 basis points to 3.86%, while the 10-year yield climbed more than 5 basis points.
U.S. stock futures also declined, with S&P 500 futures down 0.3% and Nasdaq 100 futures falling 0.4%. Prior to this, news that Iran and Oman might reach an agreement on regulating transit through the Strait of Hormuz had boosted stock markets across the Asia-Pacific region.
However, some data elements provided a buffer to rate cut expectations. The previously released February non-farm payrolls figure was revised downward, showing greater job losses than initially reported. Additionally, March wage growth slowed more than anticipated, partially offsetting the potential inflationary pressure from the strong jobs data. Tony Farren, Managing Director of Rate Sales and Trading at Mischler Financial Group, stated that this data does not push the Federal Reserve closer to raising rates, but it also does not help the case for cutting them.
Thomas Simons, Chief U.S. Economist at Jefferies, wrote in a client note that the report is unlikely to substantially alter the Fed's policy path. Simons noted that the data largely reflects past conditions and likely does not incorporate recent energy price increases or risks related to the conflict involving Iran. Currently, there are no signs indicating the Fed needs to act immediately.
Despite the disturbance from the jobs data, the underlying market driver remains the trajectory of the Middle East conflict. It was reported that Iran has formally informed mediators it is unwilling to meet with U.S. officials in Islamabad, Pakistan, in the coming days, explicitly stating that Washington's ceasefire demands are unacceptable. Furthermore, reports indicated two U.S. fighter jets may have crashed on Friday, with former President Trump stating such incidents do not affect negotiations. Stalled diplomatic and military developments have deepened market concerns over the Middle East situation. According to a recent poll, 86% of American respondents are worried about the safety of U.S. military personnel, 56% believe the conflict will negatively impact their personal finances, and over three-quarters oppose sending ground troops to Iran.
Max Gokhman, Deputy Chief Investment Officer at Franklin Templeton Investment Solutions, commented that asset prices are swinging violently with every headline. Until a clear agreement and an acceptable plan for reopening the strait are reached, economic growth will remain under pressure, and overall inflation will face upward pressure, which is difficult for both stock and bond investors to digest.
Rina Oshimo, Senior Strategist at Okasan Securities in Tokyo, pointed out that markets are highly alert to potential developments over the weekend, especially the first weekend following a major national address. If attacks escalate or retaliatory actions occur, oil prices could remain elevated for a longer period.
The crude oil market was closed on Friday for the holiday. Oil prices closed at very high levels on Thursday, with WTI crude above $110 and Brent crude near $109.
Notably, CFTC positioning data for the week ending March 31 showed speculators reduced their net long positions in NYMEX WTI crude oil by 18,268 contracts to 130,717 contracts, a four-week low. The strong jobs data boosted the U.S. dollar, with G10 currencies generally weakening. The New Zealand dollar, against a backdrop of thinning liquidity, broke below the key 0.570 support level, hitting its lowest point since November 26 of last year.
U.S. stock futures ended trading early on Friday. After the non-farm payrolls report, S&P 500 futures ultimately fell 0.32%. Yields on major U.S. Treasury maturities broadly increased.
For U.S. stock benchmark indices: S&P 500 futures finished down 0.32%, Dow Jones Industrial Average futures fell 0.23%, and Nasdaq 100 futures declined 0.38%. Russell 2000 futures dropped 0.52%.
In the U.S. Treasury market: At the New York close, the yield on the benchmark 10-year U.S. Treasury note rose 3.57 basis points to 4.343%. The 2-year Treasury yield increased by 3.7 basis points to 3.829%.
The U.S. Dollar Index held steady below 100.100 points in thin trading. The New Zealand dollar fell nearly 0.5%, reaching a new low for the year.
For the U.S. dollar: At the New York close, the ICE U.S. Dollar Index edged up 0.1%. It spiked to a daily high of 100.160 immediately after the jobs data release before retreating below 100.
Among major currencies: At the New York close, the NZD/USD pair fell 0.5% on the day, hitting a new yearly low. AUD/USD declined 0.27%, while USD/CAD rose 0.17%. USD/JPY was flat around 159.5 yen.
For offshore Chinese yuan: At the New York close, USD/CNH was at 6.8859, down 42 pips from Thursday's New York close. It traded within a range of 6.8904 to 6.8787 during the session. For the week, the offshore yuan gained approximately 330 pips, a 0.48% increase, with continued gains on Tuesday and Wednesday.
In cryptocurrencies: At the New York close, Bitcoin's spot price hovered below $67,000. Ethereum dipped 0.7%.
