After payrolls comes inflation
US job growth topped all forecasts in March confirming (for now) the strength and resilience of the labor market.
- Non-farm payrolls for March increased by 228k, above estimates of 140k
- Unemployment rate rose slightly (to 4.2% from 4.1%) but this was due to rounding issues
- After the report Chair Powell reiterated that Fed is in no hurry to act but acknowledged that impact of tariffs will be much larger than expected
- On Thursday March Inflation data will be out with core CPI expected to climb by 3.0% from a year ago (0.3% from February) with annual pace being the slowest since 2021
- Economist will look into goods inflation as this will help showing how quickly US tariffs on Chinese products feed through to American consumers
Extreme sell-off, what next?
President Trump’s announcement of tariffs on “Liberation day” and the subsequent retaliatory measures by China caused one of the most violent sell-offs on the markets in history
- Equity indices in developed markets recorded double-digit losses of between 10% and 15% within just three days
- The VIX index reached an intraday level of 60, a value not seen since the outbreak of Covid and the global financial crisis of 2008
- The Fear & Greed Index, which is used to gauge the mood of the market, reached a minimum level of 4 this Monday on a scale from 0 to 100
- Usually such extreme readings of these indicators have been followed by very significant stock market recoveries, in the absence of a deep and lasting recession
Turmoil on US Treasuries
Extreme volatility in longer dated US Treasuries as acceleration in trade war creates doubts about the haven status of US government debt
- Yield on 30-year Treasuries soared as much as 25bp to levels last seen in November 2023 – moved is fueling a broader selloff in government bonds worldwide
- Various are the reasons in trying to explain this movement: the willingness of investors to turn to more cash-like investments, the fear of tariff-driven inflation with the Fed unable to cut rates and the speculation of foreign countries selling their holdings of US debt as retaliation
- Another potential reason could be the unwinding of the basis trade (strategy used by hedge funds to wager the difference between cash Treasuries and futures prices)
Tariffs so broad, even Penguins pay!
The long list of countries now subject to U.S. trade tariffs also includes some curiosities. Likely administrative errors resulting from an automated tariff calculation add a strangely human touch to this complicated phase for globalization…
- The Heard & McDonald Islands—uninhabited and home only to penguins and seals—were hit with a 10% U.S. tariff
- No humans live there. Just wildlife… and now, apparently, trade policy victims.
- Recorded U.S. trade? Likely a clerical error (unless penguins have started exporting)
- Rumor has it they made the list due to their .hm internet domain—confused with a real country?
- No retaliation announced by the penguins and seals so far
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