Economic and Market Overview
April 2024
Volatility rose across markets as another hot inflation reading dimmed hopes for summer rate cuts.
Subscribe to NISA’s Monthly Economic and Market Overview. Markets
After closing March at an all-time high, April showers eclipsed equities as the S&P 500 fell on the first day of the month and couldn’t climb back to its record level despite attempting a brief rally in the back half of the month. Markets digested mixed signals from robust activity data and the risk of a spreading conflict in the Middle East, but the higher inflation readings and the implications for monetary policy were the main focus. Treasuries followed equities down in price throughout the month as the YTW on the Bloomberg US Treasury index rose 45 bps to 4.88% in a relatively-parallel shift higher in the yield curve. The 2y yield touched 5.00% towards the end of the month, a level not seen since the Fed’s dovish pivot in November of last year. Credit spreads remained tight as issuance slowed in April and investors continued to see value in IG yields approaching 6%. J.P. Morgan reported $104 billion in total IG, which was broadly in line with the previous three Aprils. The average OAS on the Bloomberg Long and Intermediate indices both finished 1 and 2 bps tighter, respectively. Oil prices held steady despite increased global conflict, and the Dollar index gained 1.7%.
Economic Data
The labor market stayed hot in March, as nonfarm payrolls rose by 303,000, accelerating by 89,000 from the February pace. The figure exceeded consensus by 28,000 while the prior two months were revised 22,000 higher. The unemployment rate declined by a tenth of a percent to 3.8% as strong employment gains were nearly matched by an increase in labor force participation. For April, the rate of NFP growth is predicted to decelerate to a still-impressive 235,000, with the unemployment projected to remain flat at 3.8%, when the official data are released on May 3. Consumer spending picked up in March, as headline retail sales increased by 0.7%, 0.3% more than expected, while February’s number was also revised 0.4% higher to 1.0%. Consumers didn’t seem to appreciate these strong economic data, as both the University of Michigan’s and the Conference Board’s consumer sentiment surveys fell and missed expectations. That attitude persisted in the manufacturing sector as well, where both hard data and sentiment indices showed weakness. Housing data were mixed in March, as both housing starts and building permits fell along with existing home sales, but new home sales rose and surprised to the upside. The first estimate of Q1 GDP printed a soft headline 1.6% QoQ SAAR, though this figure was weighed down by inventories and trade which may not reflect the underlying growth trend which seems to be around 2.5-3.0%.
Inflation
Another disappointing month of inflation data further complicated the monetary policy outlook. Core CPI and core PCE inflation both accelerated in March to +0.36% m/m and +0.32% m/m respectively. This leaves the 3-month annualized rates of core inflation at blistering rates of 4.5% in CPI terms and 4.4% in PCE terms. To make matters worse, wage inflation data as measured by the Employment Cost Index also accelerated in Q1 to a 4.8% annualized rate, well above levels consistent with the Fed’s price inflation objective. After three months of data in the new year, market participants are left wondering whether price inflation has merely stalled in the 3-4% range or is in fact reaccelerating to even loftier heights.
Monetary Policy
The FOMC did not meet in April. Communications after the CPI release on April 10 were predictably hawkish. Chairman Powell maintained his easing bias but acknowledged that “it will likely take longer than expected to achieve that greater confidence [that inflation is on a path back to 2%]”. Other FOMC officials generally endorsed the wait-and-see approach, indicating that there was no urgency to cut rates amidst robust growth and accelerating inflation. We have delayed our expectation for the first rate cut by one meeting to December. Interest rate markets were pricing a similar expectation, though the odds of a November hike were as high as 65% at month end.
Sources: Bloomberg Index Services Ltd., Bloomberg.
This overview is for informational purposes only. The information has been obtained from sources considered to be reliable, but the accuracy and completeness are not guaranteed. There is no assurance that any economic trends mentioned will continue or that any forecasts will occur. Economic data is as of the dates noted.
By accepting this material, you acknowledge, understand and accept the following:
This material has been prepared by NISA Investment Advisors, LLC (“NISA”). This material is subject to change without notice. This document is for information and illustrative purposes only. It is not, and should not be regarded as “investment advice” or as a “recommendation” regarding a course of action, including without limitation as those terms are used in any applicable law or regulation. This information is provided with the understanding that with respect to the material provided herein (i) NISA is not acting in a fiduciary or advisory capacity under any contract with you, or any applicable law or regulation, (ii) that you will make your own independent decision with respect to any course of action in connection herewith, as to whether such course of action is appropriate or proper based on your own judgment and your specific circumstances and objectives, (iii) that you are capable of understanding and assessing the merits of a course of action and evaluating investment risks independently, and (iv) to the extent you are acting with respect to an ERISA plan, you are deemed to represent to NISA that you qualify and shall be treated as an independent fiduciary for purposes of applicable regulation. NISA does not purport to and does not, in any fashion, provide tax, accounting, actuarial, recordkeeping, legal, broker/dealer or any related services. You should consult your advisors with respect to these areas and the material presented herein. You may not rely on the material contained herein. NISA shall not have any liability for any damages of any kind whatsoever relating to this material. No part of this document may be reproduced in any manner, in whole or in part, without the written permission of NISA except for your internal use. This material is being provided to you at no cost and any fees paid by you to NISA are solely for the provision of investment management services pursuant to a written agreement. All of the foregoing statements apply regardless of (i) whether you now currently or may in the future become a client of NISA and (ii) the terms contained in any applicable investment management agreement or similar contract between you and NISA.
