- The US had strong payroll growth and a welcome but minor slowdown in wage inflation.
- Financial markets have estimated a 72% possibility of a 25bps Fed hike.
- Ueda indicated that the BOJ’s ultra-loose monetary policy should be maintained.
US equities recovered from large losses to end Monday flat as investors absorbed Friday’s jobs data and prepared for a busy week of inflation data and bank reports.
The Labor Department released its March employment report on Friday, a market holiday, and it showed strong payroll growth and a welcome but minor slowdown in wage inflation.
The report increased the likelihood that the Federal Reserve will proceed with a further 25 basis point boost to the Fed funds target rate at the decision of its May policy meeting. However, the report also indicated that the Fed’s restrictive policy is starting to have its intended economic dampening effect.
According to CME’s FedWatch tool, financial markets have estimated a 72% possibility of a 25bps rate hike in May.
The recent data point to a slowing but resilient economy that can survive the Fed’s aggressive monetary policy as it attempts to drive inflation closer to its 2% annual objective.
Market participants will closely watch the consumer and producer price indices anticipated on Thursday and Friday. These will give a full picture of how much inflation decreased in March.
Additionally, investors will be keenly studying the first-quarter earnings reports from three major banks following the collapse of two banks in the US in March. Citigroup Inc., JPMorgan Chase & Co., and Wells Fargo & Co will release their reports on Friday.
On Monday, there was nothing from the US or global stock markets for Asian traders to hang onto.
The dollar increased globally while the yen declined, showing greater activity in the currency markets. Following the new Bank of Japan (BOJ) governor Kazuo Ueda’s first public speech, the Japanese yen fell 1% to a four-week low against the dollar.
Ueda indicated that the bank’s ultra-loose monetary policy should be maintained for now because inflation has not yet reached the 2% target. This indicated he would not be in a hurry to reduce the BOJ’s huge stimulus.
Meanwhile, now that Beijing has finished its military drills around Taiwan, Chinese stock markets can recover from Monday’s 0.5% decline, which was the sharpest in three weeks.
Investors can return their focus to Tuesday’s economic data, particularly the inflation report.