Stocks and bonds boosted by softer US data

Headlines

* Bailey signals BoE may cut rates more quickly than expected

* Dollar fades after claims data, pound recovers from BoE-led low

* Dow climbs to seventh straight positive day, above 39,000

* Gold rises 1% as soft US data lifts Fed rate cut bets

FX: USD closed lower after popping up to one-week highs at 105.74. US weekly jobless claims rose more than expected to an eight and a half month high. That says the jobs market may be cooling and is dovish. Markets appear more susceptible to softer data currently.  

EUR rebounded after overnight losses. Prices finished close to the highs of the day just below the 50-day and 200-day SMAs at 1.0789 and 1.0793. We heard hawkish comments from an ECB official who said he sees Europe’s economic growth “gaining momentum”. That means the ECB won’t commit to what happens beyond the planned June rate cut.

GBP sold off initially after the 7-2 MPC vote and lower new long-term inflation forecasts from the BoE. But there was no explicit signal of a June rate cut from Governor Bailey at the press conference, even though he did say the bank may need to cut rates more than investors would expect. Two more CPI and wage growth reports before the June meeting means a rate move at that meeting is still uncertain. The long-term downward trend line from the March is now acting as support as prices eventually finished 0.21% higher.  

USD/JPY printed a doji, halting three days of strong gains this week.  The 50% point of the recent high (160.20) to low (151.85) is at 156.03. BoJ board members were strongly hawkish at their April meeting in their summary of opinions. The major fell 3.4% last week, its biggest weekly % drop since early December 2022. There has been some speculation the BoJ could tighten policy soon to help support the yen.

AUD ticked up above 0.66 on mildly improved risk sentiment. The midpoint of the December high to April low is 0.6616. This area is where highs in January, March and April were capped. USD/CAD moved lower below 1.37 ahead of the release of jobs numbers out later today.

Stocks: US equities were largely firmer in light trading. The rise in jobless claims was the highest since August 2023. The broad-based benchmark S&P 500 finished up at 5,214. The tech-heavy Nasdaq 100 underperformed, adding 0.16% to close at 18,113. The Dow Jones settled up 0.85% at 39,388. Tech weighed with semiconductors lower and Nvidia down 1.84%. Tesla fell for a third straight day to its 50-day SMA. Bloomberg reported more China job cuts with more layoffs next week.

Asian Stocks: APAC futures are mixed. Asian stocks traded mixed with similar performance on Wall Street. The ASX 200 lost ground as CBA, the country’s largest lender, posted a drop in profits. The Nikkei 225 rebounded after an initial sell-off as traders digested BoJ speak. The China indices were supported by tech.  

Gold could be breaking higher after recent consolidation. Yields were quiet while the dollar slipped.  

Day Ahead – UK GDP, Canada Jobs

UK GDP comes after yesterday’s BoE meeting. Consensus expects growth to rebound to 0.4% q/q from the prior -0.3%, with the March figure forecast to continue the expansion seen since the start of the year. PMIs also point to improved growth momentum. Markets price a June rate cut near a coin flip with 56bps of cuts for 2024, a few pips higher than before the BoE. Policymakers are data dependent, but wage growth and inflation are the key metrics.

Expectations are for 20k job Canada job gains in April. The unemployment rate is predicted to tick up to 6.2%. Economists say that continued rapid population growth could drive greater expansion in the labour force than employment. BoC policy remains tied to the US and the Fed. A September US rate cut brings forward a June BoC move with around 17bps (68% chance) priced in.