Please see below article received from Brooks Macdonald today 06/04/2023 which provides their views on recent global market events:
What has happened
Market sentiment worsened yesterday with additional data releases pointing towards weakness in economic growth. The ADP’s private payroll report came in far lower than market expectations, mirroring some of the softening labour market evidence from the job openings survey on Tuesday. US equities fell yesterday with technology shares underperforming despite rate expectations continuing to fall.
US economic data
After the ADP report set the scene for a risk-off day of equity market trading, the final PMI readings for March were released. There were some sizeable downgrades versus the flash estimates with both the services and composite readings disappointing. To cap off the weak day for data, the US ISM services index came in lower than estimates with declines within the employment and new order subcomponents compared to the previous month. These data releases cemented the market’s view that it was no more than a coin toss as to whether the Fed will raise interest rates by 25bps at their May meeting. Given the focus on employment readings in recent days this sets the market up for the US jobs report which is released tomorrow despite most markets being closed for Good Friday.
US employment report
In terms of what to expect from the jobs report, the consensus expectation is for 240k new jobs to have been created in March, down from the 311k seen in February. The unemployment is expected to remain steady at 3.6% and average hourly earnings are expected to tick down on a year-on-year basis from 4.6% to 4.3%. With the softer employment numbers recently, a major question will be whether this has impacted wage inflation or the average length of the working week (which is expected to remain steady at 34.5 hours).
What does Brooks Macdonald think
Despite employment remaining tight compared to historical averages, investors are starting to consider whether we may be seeing a pivot in labour market strength. The US employment report is therefore crucially important as it could confirm the recent trends in business demand for new workers. Investors will have until Monday in the US, and Tuesday in the UK, to conclude whether the report provides further impetus to the decline in equity markets this week.
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Adam Waugh
06/04/2023