SignalPlus Macro Analysis (20240506): Risk assets have the opportunity to slowly start rising again
Employment data fell below expectations for the first time this year (without an unexpected rise), with a total employment change of +175,000 (the previous average increase was about 275,000), and the unemployment rate unexpectedly rose from 3.83% to 3.87%.
Other higher-frequency employment market indicators are also beginning to show signs of slowing down. For example, the recent JOLTS report shows a decrease in the ratio of job vacancies to unemployed individuals, and the hiring and turnover rates in the private sector are at their lowest levels in years.
In addition, the hiring trends of small businesses have significantly weakened, with the employment components in ISM and PMI showing weakness, and the proportion of service and manufacturing companies currently hiring has dropped to levels typically seen only during economic recessions.
Last Friday, we noted that the non-farm employment data was likely to lean dovish, especially considering that the Fed's FOMC has clearly stated that they are increasing their focus on the softening labor market and are willing to overlook recent inflation conditions. Now, the employment data is indeed weak, and expectations for interest rate cuts have returned to the market, triggering another wave of risk rebound.
Yields have shown a bull steepening trend, with the 2-year yield falling from 5% to 4.8%, and the 10-year yield returning to 4.5%. The market is again pricing in nearly two rate cuts this year. In the stock market, tech stocks rose by 2%, with the SPX closing above 5,100 points, and the USD/JPY fell from last week's high of 159 to 152.5 within 48 hours. In summary, market sentiment was boosted by the dovish rate backdrop, ending last week with a strong risk rebound.
This week, macro data will be relatively light, and the speeches of Fed officials may be more important than the data itself. China will release money supply/financing data, while the U.S. will have Barkin, Williams, Kashkari, Jefferson, Collins, Cook, and Bowman taking turns to express policy opinions. After several weeks of risk cleansing, market positions should be cleaner compared to March, and risk sentiment may have found a recent bottom, at least until data begins to imply more "hard landing" risks. As investors continue to adjust their portfolios rather than directly sell stocks, the actual volatility of the SPX remains very low. Bloomberg reports that during the current adjustment period, the leading stocks in the SPX have changed, although it seems more like a rotation among the 'magnificent 7'. Risk assets are expected to have the opportunity to slowly climb from here.
The correlation between cryptocurrencies and macro sentiment is becoming stronger. As market sentiment shifts back to a dovish Fed/lower forward rates/stronger stock market, despite weak performance in spot gold, cryptocurrency prices saw a significant rebound last Friday, with BTC spot prices breaking through $64,000 over the weekend. Last Friday, U.S. ETF inflows were strong, reaching $378 million, and even Grayscale saw an inflow of $63 million. In the current macro environment, we maintain a more neutral view on risk-return, expecting short-term price pullbacks to be more favorable for buying on dips.
