US non-farm payrolls – 01/04 – The most recent US payrolls report was by all accounts a fairly decent one, although the number was of lesser importance given that we already knew that the Fed was going to raise rates come what may when they met in March. Nonetheless the headline number smashed expectations of 415k, coming in at 678k, while January was revised modestly higher to 481k. During that same week the ADP payrolls report saw a huge revision from -301k to 509k, an 810k swing from negative to positive, altering the picture for the US labour market substantially. The unemployment rate also fell back, slipping to 3.8%, while in an extremely encouraging development the participation rate rose to 62.3%, its highest level since March 2020, when we were at 62.7%. This trend needs to continue if we are to get back to the 63.4% level we saw in February 2020. The only cloud on an otherwise positive report in February was a slide in the average hourly earnings data from 5.5% to 5.1%, which at a time of rising inflation is probably not what you want to see if you are concerned about the rising cost of living. This week’s payrolls report for March is expected to another strong month for hiring patterns. Vacancy levels still remain high at over 10m jobs, while weekly jobless claims remain close to 50-year lows. As such expectations for this week’s payrolls report are for another 450k jobs to be added, while ADP is forecast to see another 400k jobs. The unemployment rate is forecast to fall to 3.7%, and average hourly earnings to move higher, up from 5.1% and back towards 5.5%. US Consumer Confidence (Mar) – 29/03 – US consumer confidence has been on a downward track for several months now; however, it’s not been particularly reliable indicator of consumer spending patterns. The last two months have seen a sizeable rebound in US retail sales yet little of that has been reflected in consumer confidence surveys, while forward inflation expectations have gone up. Quite simply while US consumers may be spending more, their concerns about the economy are rising due to surging energy prices. In February we saw consumer confidence slide back to 110.5 from 111.10 and is expected to fall further to 107.80 in March, on the back of continued sharp rises in energy and food prices. US Core PCE Deflator (Feb) – 30/03 – As expected we saw the Federal Reserve raise rates by 25bps at their March meeting, however some people on the FOMC like St. Louis Fed President James Bullard wanted to go faster and harder when it comes to tightening monetary policy. In a recent post on the St. Louis Fed website Bullard argued that the Fed funds rate needed to be at 3% by year end due to core PCE being over 4% higher than the Feds target rate of 2%. While he is probably in a minority on this point the Fed has indicated it wants to see another 6 rate rises this year, and that at least one of these is likely to be a 50bps move, probably in May. A strong core PCE is likely to increase the odds of this happening. In January we saw the PCE Deflator rise from 5.8% to 6.1%, while core PCE rose to 5.2% from 4.9%. This weeks February numbers are expected to see a further increase in underlying prices with PCE Deflator set to rise to 6.4% and PCE Core Deflator to rise to 5.5%. US Q4 GDP final - 30/03 – The most recent revision to US Q4 GDP saw the US economy bounce back strongly after a fairly disappointing Q3. A rebound in hiring has certainly helped, as well as a strong recovery in both manufacturing and services activity, despite the end of the year Omicron disruption, which saw weekly jobless claims rise sharply. It appears that US companies used Q4 as an opportunity to front run potential problems around supply chain shortages and disruption, by ordering early and front running demand and rebuilding their stock ahead of the Thanksgiving and Christmas period. As such we can expect to see this week’s final iteration of Q4 GDP to get revised higher again, from 7% to 7.1%, despite weak personal consumption rates. Global Manufacturing PMIs (Mar) – 01/04 – After a weak finish to 2021 economic activity in Germany picked up in the first two months of this year, with both manufacturing and services activity performing well. This doesn’t chime with some of the industrial production and factory gate prices, which has been weak, and with input costs surging since the end of last year, one has to question how reliable some of this latest PMI data actually is. The latest factory gate prices for February showed...

Asia markets are opening g soft on the back of Covid concerns in  Shanghai as the city goes into semi-lockdown from today, with potential disruption across tech/EV supply chains.  Weaker bond markets are setting records with the benchmark UST indices, which are the worst on paper at this stage in data going back to 1972. Barring an end-of-month rally, Q1 2022 will underperform the weakest quarter on the record set in Q1 1980. The cross-asset reaction to higher yields has been a collective shoulder shrug in sharp contrast to the equity market drawdowns seen earlier this quarter Significant month and quarter-end rebalancing following the steepest YTD drawdowns in bond markets in decades could push implied rates and equity market volatility higher this week and next. But with CPI inflation yet to peak in the major economies, higher highs in yields look set to follow in Q2 beyond any near-term rallies.   Oil Oil fell at the NYMEX open as China's worsening virus resurgence raised concerns about demand in the world's biggest crude importer. Global markets seem to be a bit nervous about the effectiveness of China's zero-tolerance policy towards covid and the potential for more demand and supply chain disruptions as we might be only dealing with the tip of the iceberg. Oil prices remain supported in part because of the unexpected disruption to crude flows via the CPC export terminal in Kazakhstan. Severe weather caused damage to two of the terminal's three mooring systems, and the resulting halt to loadings impacts around 1mb/d of crude flows – significant in the context of already-tight markets. Repairs will reportedly take at least one month, adding to near-term supply uncertainty and supporting oil prices. More companies are committing to a 'private sector embargo,' including total winding down purchases by year-end, with many companies not willing to ink new deals. Public opinion and government coercion make it difficult to envision these companies restarting purchases. Although March vessel loadings of Russian crude and products may be little changed, reflecting deals struck in February, the disruption to April loadings and pipeline exports could be significant relative to the market's current state expectations.    Gold The offsetting narrative of lower oil and a coronavirus surge in China ( inflationary impact of a supply chain disruption) has seen relatively neutral but with a soft sell bias at the open of gold trade.  With war rather than peace looking more likely for the foreseeable, gold remains well supported on dips. And with oil prices more likely to stay higher for longer, inflation and the real possibility of stagflation hitting the global economy continues to support gold.  Hence, gold investors may still think the Fed's "whatever it takes" moment is more bark than bite, so they continue to buy gold in dips.    Forex  USDCNH is testing 6.3900 this morning in Asia after a spike in covid cases reported in China. The surge raises the chances that the PBoC will need to cut interest rates more aggressively than priced. This creates an obvious policy divergence trade between the PBoC vs the FED 

“An afternoon wobble shows that nervousness remains, but equities have moved through the week without giving back too much ground.” Rally continues, despite growing scepticism “The recent bounce from the lows is still going intact, if it has taken a knock in afternoon trading, although the darker global economic outlook means that many are wondering whether these gains can be sustained. Investors keep waiting for the other shoe to drop, but as yet stocks are not giving people the trigger to begin selling once again. This caution is perhaps the best foundation for more gains, since it doesn’t appear to be accompanied by too much euphoria, but with the Fed now openly talking about 50 basis point hikes it is sensible to ask whether valuations can keep rising even as the prospect of weaker growth looms ever larger.” Oil moves up even as US ponders new reserves release “Oil seems impervious to any potential bad news, with today’s move higher coming despite news that the US is pondering another release of petroleum from its strategic reserve. But such releases offer temporary respite from rising oil prices, much as the cut in fuel duty on Wednesday did for UK consumers. OPEC’s next meeting is perhaps the only near-term hope for a change in direction.”

Gold and oil prices surged on Friday, as markets reacted to the news that there was an attack on Saudi Aramco’s facilities in Jeddah.   Reports claimed that missiles and drones were fired at the facilities, near the port city, resulting in huge explosions.  A Yemeni based Houthi group took responsibility for the attacks, which came days before a Formula One event was to be held in Jeddah. Following the attack, Saudi Arabia refused to  bear responsibility for any global oil shortages, as a result of the attacks on its oil facilities. WTI crude hit a high of $115.74, whilst XAUUSD peaked at $1,964 for the day.  Meta marginally higher, following U.S/EU data transfer pact  Meta was trading marginally higher on Friday, as it was reported that the EU and U.S. had agreed on a new data sharing pact. Several huge tech companies in the U.S. the likes of Meta and Google, were considering their options in Europe, as both were uncertain about how changes in legislation would affect data flows. Today’s pact will see the formation of a new framework for cross-border data transfers, which will replace the old “privacy shield”. Speaking on Friday, President Biden said that, “This framework underscores our shared commitment to privacy, to data protection, and to the rule of law”. Both Meta and Google shares were higher on the news.

According to the Office for National Statistics, retail sales in the UK decreased by 0.3% in February, as opposed to market expectations of deceleration to 0.6% from 1.9% growth in January. Moreover, sales excluding fuel fell 0.7% in March and missed market projections of 0.5%. As for the US dollar has pared some of its intraday losses by drawing some support from rising bets on a 50 bps rate hike by the Fed in May. Bears await a decisive break below the ascending flag support, as fundamental news prompted downward pressure on the GBP/USD pair. The rest of the day is expected to be dominated by Fed officials' speeches, which may reinforce the hawkish stance and offer more support to the dollar. Technical view The pound has exhibited a bearish flag against the US dollar on the four-hour chart, struggling with the 50-bar EMA. Sterling is currently trading in a range market, fluctuating between 1.32242 and 1.31526, corresponding to a 23.6% Fibonacci retracement of the prior downtrend. As it turns out, sellers tend to violate this key support area at the confluence of 50 EMA, lower flag line, and 23.6% Fibo level. Yet, there are still no signs of a bearish trend, and we will need a clear break out before we can pinpoint a direction. The bearish scenario could play out if sellers break below the 1.31526 hurdles and drag the 1.31377 level into the spotlight. Continuing below this level can push the pair towards 1.31142. If the negative momentum continues, GBP/USD can then move lower towards the 1.30882 barriers. By contrast, if 1.31526 holds, the pair will likely remain sideways, aiming for the range top at 1.32242. Breaking this barrier could lead to buyers reclaiming 1.32463, which is in line with the 38.2% Fibonacci level. In the event of a breach of this latter, the move toward 200-bar EMA could speed up. The short term momentum oscillators paint a mixed picture. The RSI is floating in a neutral region with no apparent direction. Also, momentum has drawn a sideways movement attached to the 100-baseline. Similarly, MACD bars are positive but shrinking towards zero, indicating fading directional momentum.

GBP/USD Cable holds in a choppy and directionless mode for the second straight day and remained resilient despite downbeat UK retail sales data for February. Weaker dollar in European trading on Friday helped sterling ahead of pivotal support at 1.3150 (50% retracement of 1.3000/1.3298, reinforced by 10DMA), after the action was already rejected at this zone on Thursday. Technical studies on daily chart lack clearer direction signal as bullish momentum is rising but stochastic is heading south and 10/20DMA’s are in mixed mode. Watch the action around 1.3150, as firm break here would encourage sellers and risk test of Fibo supports at 1.3114 and 1.3071 (Fibo 61.8% and 76.4% of 1.3000/1.3298 respectively) which guard key 1.30 level. At the upside, initial barrier lays at 1.3245 (Fibo 38.2% of 1.3642/1.3000) followed by 1.3298 (Mar 23 recovery peak), violation of which would bring bulls back to play. Res: 1.3245; 1.3282; 1.3298; 1.3321. Sup: 1.3150; 1.3114; 1.3071; 1.3034. Interested in GBP/USD technicals? Check out the key levels