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Economic and Market Overview

April 2024

Volatility rose across markets as another hot inflation reading dimmed hopes for summer rate cuts.


April 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%.


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.

April Monetary Policy

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. 

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