Daily Market Commentary 4th May 2024

The important Non-Farm Payrolls missed expectations Friday, coming in at 175,000 jobs added, from an anticipated 250,000. The headline unemployment rate jumped up to 3.9% and the easing of the labour market, is exactly what the Federal Reserve and markets were looking for. The Fed has stated many times that it is looking for the labour market to cool, to take the heat off inflation, which is needed to return to the target band of 2% or below. We are back in the ‘bad news is good’ dilemma, where the bad economic news is greeted by markets, because it may lead to encourage the Fed to cut rates. The Macro-Economic situation in the US is deteriorating, with growth slumping and inflation back on the rise. This is heading towards the ‘stagflationary’ crises that Europe is currently suffering. The rally in bonds was accompanied by a sharp fall in bond yields and the US Dollar, allowing the EUR to regain 1,0750, while the GBP rallied to 1.2550.

Commodity currencies were once again beneficiaries of the softer reserve, with the AUD breaking back above 0.6600, while the NZD looked to regain the ‘Big Figure’ of 0.6000. Economic conditions in Europe and the US, are demanding stimulus, in the form of lower interest rates and the pressure is on the Fed to follow the anticipated cuts expected from the ECB. The best way to disappear inflation, is recession, but it is not a politically astute modus operandi, in a US Presidential Election year. The coming week is highlighted by interest rate decisions from both the RBA and Bank of England. These Central Banks are both expected to hold rates steady, following the lead of the Fed, while pressure builds for relieving interest rate cuts.