Global equity and FX volatility was more subdued last week, with daily percentage gains and losses in the S&P 500 not exceeding 4.4%. Everything is relative of course. However, volatility in the crude oil market hit unprecedented levels.
The mismatch between supply and demand had kept the price of Brent crude oil pretty stable at around $25/barrel since early March. But it soared more than 20% by close of business on 2nd April to $30/barrel following a tweet in which President Trump said he expected Saudi Arabia and Russia to curb supply by at least 10 million barrels. The oil price rose a further 9% on Friday to just below $33/barrel and clearly this story has further to run.
Markets last week arguably started to re-focus on global macro data and some of the shocking PMI and labour market numbers in the US and across the world.
The Dollar, which had shed over 3% in the previous week, rebounded by almost as much fuelling concerns that the measures taken by the Federal Reserve and major central banks to increase the flow of Dollars were falling short. For many developed and in particular emerging market economies, corporates and households with large Dollar liabilities, this rebound in the Dollar to near-record highs is adding to the economic pain.
US macro data were on the whole mixed. The Conference Board index fell from 132.6 in February to 120, versus a consensus forecast of 110. The ISM PMIs – forward looking indicators of economic activity – weakened in both the manufacturing and services sectors in March but by far less than forecast and ultimately the falls were modest within the greater context.
However, it is the collapse in the US labour market which stood out. Initial jobless claims rose 6.6 million in the week of 2nd April, ten times more than the worst week during the 2008-2009 financial crisis. In the space of a fortnight 10 million Americans have filed for unemployment benefits for the first time ever. The number of people employed in the non-farm sector fell by 701,000 in March. To put this context the biggest monthly contraction in 2008-2009 was 699,000. This resulted in the US unemployment rate jumping to 4.4% from 3.5% in February.
Sterling held its own last week, gaining 0.5% in trade-weighted terms. But the Euro and Australian and Kiwi Dollars shed 1.2%, 1.7% and 1.4%, respectively. The unwinding of short-Euro positions, which earlier in the year had driven the Eurozone currency higher, has seemingly well and truly run its course. The Swiss Franc weakened 0.5% but remains broadly in the middle of a narrow one-month range of about 1%.
