Forexlive Americas FX news wrap 5 Apr: Weaker US data starts to pile on | Forexlive

Weaker US data continued to pile on with the ADP job change coming in weaker at 145K vs 200K estimate. Later in the day the ISM services index fell to 51.2 vs 54.5 expected. Looking at some of the components from the ISM services index shows:

employment index 51.3 versus 54.0 prior
new orders index 52.2 versus 62.6 expected
prices paid index 59.5 versus 65.6 prior
new export orders 43.7 versus 61.7 last month
imports 43.6 versus 52.6 last month
backlog of orders 48.5 versus 52.8 last month

Those are some healthy declines on the month.

Recall, the data has been consistently weaker of late. Yesterday, the factory orders and JOLTs were lower than expected. On Monday, the ISM manufacturing data was weaker. Core PCE was lower on Friday as was the Uni. of Michigan consumer sentiment including the 1 year inflation component.

Meanwhile the Atlanta Fed GDPNow has seen it’s model for Q1 growth plummet from 3.5% on March 24 to 1.5% today. That is further evidence of the erosion being seen in the most recent data.

Tomorrow the initial claims will be the last piece of data before the release of the US jobs numbers on Friday. That release comes on a semi-holiday in the US. The US stock market will be closed, but the US bond market will be open until noon.

Speaking of the bond market, it continued it’s volatility and downward bias. After the ISM data today, the 2 year yield moved from 3.753% to a low 3.646%. The 10 year yield moved from 3.314% to 3.268%. Both of those yields rebounded with the 2 year moving back up 3.792% currently. However, that is still down -4.4 basis points today. The 10 year has moved up to 3.307% which is down -3 basis points on the day.

For the week, the 2 year yield is down from 4.029% on Friday to the current yield of 3.792% or down about -24 basis points. The 10 year yield is down from 3.471% to 3.307% or -16.4 basis points.

The markets are now pricing in about a 100 basis point cut in rates by January 2024. The current Fed Funds target is at 5%, while the January Fed Funds contract is at a yield of 4.08%.

To add more confusion, Fed’s Mester was pretty adament that the Fed Funds target needs to go higher (the Fed projected 5.10% and she implied 5.25% consistent with the idea). She also sees rates remaining steady for a long while. Mester and the Fed at 5.10%. The market at 4.08%. Something has to give, right?

The USD today did not follow the lead from the lower US yields (or lower stocks). The greenback is closing the day mostly higher vs the major currencies with gains vs the EUR, GBP, CHF, CAD, and AUD (see changes of the major currencies vs each other from the charts below). The USD is lower vs the JPY and little changed vs the NZD. The JPY is ending the day as the strongest of the major currencies today, while the AUD is the weakest. This week the RBA kept rates unchanged at 3.6%. In contrast the RBNZ raised rates by 50 basis points to 5.25% and implied another hike in May of 25 bps. HMMM. If the Fed vs the US debt market is diverging, RBNZ vs RBA is another divergence that makes you wonder.

US stocks today are ending mixed but off low levels. The Dow is closing higher on the day. The S&P and Nasdaq are both closing lower. A snapshot of the closing and low levels shows:

Dow industrial average rose 80.34 points or 0.24% after trading down as low as -26.12 points.
S&P index closed down -10.24 points or -0.25% after trading down as low as -28.05 points
Nasdaq index closed down -129.48 points or -1.07% after trading down as low as 194.48 points

In other markets: