| Before getting into Friday’s comments, I wanted to note for everyone that in recognition of International Women’s Day on Monday, this week’s FX Podcast will feature women from the City National Bank FX team. You can access it in our FX Compass publication coming out on Sunday. You can sign up for FX Compass and all City National® market publications at Newsletter Subscriptions (cnb.com).|
We end the week on a high note. The big data point of the week — nonfarm payrolls — increased 379,000 in February, better than consensus forecasts of 200,000. January’s report was revised upward to 166,000 from 49,000. Notably, private payrolls jumped to 465,000 in February from just 6,000 in January. The unemployment rate dropped by a tick to 6.2%.
Federal Reserve Chair Jay Powell’s appearance at a Wall Street Journal event yesterday technically “disappointed” the markets, although it is a head scratcher as to why. The Fed chair reiterated what his colleagues have been saying all through this recent backup in long-dated Treasury yields; the economy is returning and looking better, and this is what you expect when things look good. Inflation will no doubt look high in the next few months, but that is due to base effects; that is, companies lowered prices in the chaos of the pandemic, which started in earnest about a year ago. For the next few months, price levels compared to last year will look high, but that is no reason to panic about runaway inflation, according to the Fed.
Why is the market disappointed with all of that? I guess markets think the Fed can’t change on a dime if the party goes too far. Stocks took a hit yesterday, with U.S. major indexes down 1%–2%. The U.S. 10-year Treasury yields rose to 1.55%. But with the good jobs data, the 10-year Treasury yields popped up to 1.6% before backing off slightly.
Depending on whether you buy or sell petroleum products, you will be either worried or hopeful about the trends in oil prices. The after effects of OPEC’s decision not to increase output next month have moved West Texas Intermediate crude above $65 — levels we have not seen since April 2019.
In addition to the podcast, FX Compass will look at how other equity and debt markets are faring these days, in addition to how this rise in oil prices could creep into policy decisions later this year.
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