Israel withdraws troops from the southern Gaza Strip. Canada’s labor market remains resilient

The US nonfarm payrolls for March rose 303,000, exceeding expectations of 214,000 and representing the largest increase in 10 months. The unemployment rate fell 0.1% to 3.8% in March, matching expectations. The US average hourly earnings fell to 4.1% y/y from 4.3% y/y in February, matching expectations and representing the slowest rate of growth in 2 years.

Fed spokeswoman Bowman said she still sees several upside risks to inflation and “it is not yet time” to cut interest rates. She added that it is possible that the federal funds rate level consistent with low and stable inflation “will be higher than it was before the pandemic, and if so, fewer rate cuts will eventually be needed to return our monetary policy stance to neutral.” Dallas Fed President Logan said on Friday that it was “too early” to cut interest rates because there are concerns that inflationary progress could stall and that price growth may not cool down to the Fed’s 2 percent target in a “timely manner.” The Fed’s hawkish comments on Friday drove bond yields higher and suggested that the Fed will not be cutting interest rates anytime soon. Markets rate the odds of a 25 bps rate cut at 6% for the next FOMC meeting on May 1 and 58% for the next meeting on June 12.

Tesla (TSLA) stock price fell more than 3% and topped the Nasdaq 100 losers list after reports that the company canceled its plans for a low-cost entry-level Tesla car.

The number of jobs in Canada was unchanged last month, but the fundamentals fared better. Average hourly earnings in Canada rose to a 4.5% m/m SAAR. This is a solid increase after 4.3% in the previous month. On the other hand, rising wages are a factor in rising inflation, which may force the Bank of Canada to delay plans to start cutting rates. The Bank of Canada is looking at an annualized rate of 5%, up a tick from the previous month. It means that wages are rising too fast relative to the inflation target.

Eurozone February retail sales fell by 0.5% m/m, weaker than expectations of 0.4% m/m. German Factory Orders in February rose by 0.2% m/m, weaker than expectations of 0.7% m/m. The German Import Price Index for February fell by 0.2% m/m and 4.9% y/y, weaker than expectations of unchanged m/m and 4.6% y/y. Swaps estimate the odds of a 25 bps ECB rate cut at 7% at the next meeting on April 11 and 97% at the next meeting on June 6.

WTI crude oil prices fell more than 2% to $85 a barrel on Monday as Israel withdrew troops from the southern Gaza Strip in response to mounting international pressure. Israel and Hamas also resumed peace talks in Egypt, easing tensions that have led to the recent surge in oil prices. Meanwhile, major oil exporter Saudi Arabia raised official selling prices for all grades of crude for Asia in May amid tightening global supply.

Asian markets were mostly down last week. Japan’s Nikkei 225 (JP225) fell by  4.07%, China’s FTSE China A50 (CHA50) declined 0.19%, Hong Kong’s Hang Seng (HK50) gained 1.17% for the week, and Australia’s ASX 200 (AU200) was negative 0.59%.

Bank of Japan Governor Kazuo Ueda said inflation will likely accelerate from “summer to fall” as a sharp wage rise will increase prices. It was his strongest hint yet of the possibility of another rate hike in the coming months. Ueda added that the central bank could “respond with monetary policy” if currency movements significantly affect inflation and wages, suggesting that a sharp fall in the yen could affect the timing of the next rate hike.

The Reserve Bank of New Zealand (RBNZ) is expected to quickly decide to keep interest rates unchanged at its meeting on Wednesday. Still, the central bank will have to deal with stagnant inflation amid growing financial stress. The official money rate is forecast to be kept at 5.5%, but there could be dovish adjustments to the forecasts. UBS believes that the RBNZ will wait until November before cutting interest rates.

On Sunday, the People’s Bank of China (PBoC) announced a 500 billion yuan “re-lending” program for technology innovation and transformation to support small and medium-sized technology enterprises. This week, investors await China’s latest inflation data for economic and monetary policy insights.