The U.S. Economy Created 431,000 Jobs in March… The unemployment rate fell to 3.6%.
What it means— The jobs number missed by 60,000, but the January and February totals were revised higher by 95,000, making it something of a wash. The big news in the report was the 0.4% monthly gain in average hourly earnings, which pushed up earnings by 5.6% over last year. That’s the fastest wage gain since 2007. With inflation just below 8%, workers are still going backward in their purchasing power, but the red-hot wage gains give the Fed the green light to raise rates by 0.50% at their next meeting. The numbers pushed the 2-year Treasury yield to 2.44% and the 10-year to 2.45%, putting the 2s10s spread at zero and very close to inversion. A 2s10s inversion implies that the U.S. economy will fall into a recession in the near future.
The Japanese Yen Jumped Near 125 per U.S. Dollar, a Seven-Year Low in Value… The value of the yen drops as the number of yen per dollar rises. The Bank of Japan (BoJ) kept interest rates negative at its latest meeting even as other nations raised rates to fight inflation. The widening gap between BoJ policy and that of other central banks drove investors out of the currency.
What it means— The official policy of the BoJ is for 10-year Japanese government bond (JGB) yields to hover around 0.00%. The bank appears to intervene when the yield gets close to 0.25% by printing money to purchase bonds and therefore drive down the yield. So many people were selling JGBs and then exchanging yen for foreign currency to buy higher-yielding government bonds elsewhere that it drove up JGB yields and pushed down the value of the yen. If the pressure continues, the yen could quickly fall by another 20%, reaching 150 per U.S. dollar. A falling yen drives import prices higher, including energy prices, which creates inflation. So far, the BoJ has held interest rates at record lows, because it notes that inflation is not driven by higher demand but by outside forces. If the yen sinks lower in value, this will make matters worse.
Peace and Ceasefire Talks Move the Markets… Potential progress in peace or ceasefire talks pushed equity markets higher, only to reverse when the progress failed to materialize.
What it means— Propaganda is one of the weapons of war. We can expect both sides to use whatever means necessary to achieve their goals. The Russians can use the possibility of a ceasefire to regroup for another offensive push, while the Ukrainians can use rumors of peace to highlight Russian hostilities. The U.S. markets rocketed higher over the past two weeks the Ukrainians held some ground and the Russians appeared to retreat a bit, but it’s not likely to last. When energy sanctions take hold mid-month, the war drags on, and the humanitarian disaster across Ukraine gets worse, we’re likely to see the markets roll over.
Russian Oil Pipeline Company Limits Storage for Some Companies… Russian pipeline network operator Transneft capped the amount of oil it would take from companies that don’t have buyers. The move shows that oil storage in Russia is filling up.
What it means— There’s no question that some Russian oil companies are having a difficult time redirecting cargo to willing buyers. The slowdown in sales has not been matched by a slowdown in production, which is causing a buildup in supply. Russian oil companies report that sales for next month will increase substantially, which should alleviate the storage issue. We’ll see if that happens or if it’s just more disinformation. If it’s true, then oil prices should ease back to or below $100 per barrel. If it’s not, then we’ll likely see prices back over $120, just ahead of the summer driving season.
President Biden Orders One Million Barrels of Oil per day Released From Strategic Petroleum Reserve (SPR)… Biden wants to make up for some lost supply due to sanctions on Russia and thereby lower fuel prices.
What it means— The SPR was created after the oil embargo of 1973 to give the U.S. a buffer in case of an emergency. A shooting war in Europe sure sounds like an emergency. The added supply definitely will help and should keep gasoline prices at least somewhat tolerable during the summer driving season and also during the lead up to the November mid-term elections, but the longer the situation persists, the harder it will be to keep oil prices from soaring. We have roughly 600 million barrels of oil in the SPR. If we release one million per day through October, the inventory will fall to 420 million. What is the likelihood that sanctions on Russia will end by then? If we artificially hold down prices by adding supply that cannot be readily replenished, we might be setting ourselves up for a huge spike down the road. All of that is speculation. As we add supply to the oil markets from the SPR over the summer, we’ll give consumers a real break at the pump. President Biden will have to walk a bit of a political tightrope on messaging, because he’s providing consumer relief but likely slowing the move away from fossil fuels just a bit.
And don’t forget the Saudis. They’re none too happy with the U.S. pulling away from them over the last year or so and haven’t shown an interest in raising oil production. It’s possible that OPEC+, which includes Russia, will decide that more U.S. supply from the SPR is a good reason to curb output, which would negate the release from the SPR.
Chris Rock Wins the ‘Fight’… Will Smith might have walked on stage and slapped comedian Chris Rock at the Oscars after Rock made a joke at Smith’s wife’s expense, but it was Rock who won in the end. After taking the smack, Rock remained standing, exchanged a few words with Smith, and then finished his part in the awards show. The next day, ticket sales to Rock’s upcoming comedy shows skyrocketed, with the cheapest seats for a Boston show jumping from $46 to $411. Rock might consider his ticket pricing structure in the future. It’s likely that jokes about “the slap” will be part of his act for a long time. Rock not only kept his composure, so far, he has refused to press charges.
Data supplied by HS Dent Research
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