Why was Powell dovish?

Thoughts of the Day

With the much weaker-than-expected jobs data released on Friday, it is now obvious why the Fed Chair Powell insisted on being dovish during the FOMC press conference. The US Non-Farm Payrolls showed that only 175K jobs were added (EXP +243K, PREV +315K). The unemployment rate jumped to 3.9% (EXP & PREV +3.8%). Additionally, average hourly earnings increased by 3.9% over the year in April 2024 (EXP 4.0%, PREV 4.1%).

The Fed will seriously start to consider cutting rates given that the job market is starting to slow

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Week Ahead


Tuesday: Reserve Bank of Australia Monetary Policy Meeting (expect interest rates to be kept unchanged at 4.35%)


Thursday: Bank of England Monetary Policy Meeting (expect interest rates to be kept unchanged at 5.25%) 

Friday: ECB Monetary Policy Meeting Accounts are expected to be released.

Canadian Labour Data for Apr (Employment Change: +17.5k expected and -2.2k previous, Unemployment Rate: 6.2% expected and 6.1% previous)

US University of Michigan Consumer Survey for May (Consumer sentiment: 77 expected and 77.2 previous)

Saturday: Chinese Inflation Data for Apr (Consumer Price Index YoY: +0.1% expected and previous, Producer Price Index YoY: -2.3% expected and -2.8% previous)

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What Happened Yesterday

Market Movements as of New York Close 3 May 24 (5 May for Crypto)

Bowman (current voter, known hawk):
“Remains willing to raise rates further if data shows inflation progress has stalled or reversed.” “Too-loose financial conditions remains a risk, fiscal stimulus could drive demand higher, stalling or even reversing inflation progress.”
Goolsbee (2025 voter, slight dove): “Fed must get comfort that recent inflation is not a sign of reacceleration.” “If the Fed remains restrictive too long, it will have to think about the employment side of the mandate; but current numbers are solid.”
(Officials are coming to the consensus that inflation progress has stalled. Bowman is becoming more hawkish with an inclination to raise rates if needed. Goolsbee is balancing it with the labour side.)

Euro Area Unemployment Rate (6.5% as expected and prev). No reaction in the EURUSD.

US Nonfarm Payrolls (+175k actual vs +243K expected vs +315k prev –  revised from +303k),  US Unemployment Rate (3.9% vs 3.8% expected and prev), Labour Force Participation Rate (62.7% as expected and prev), Average Hourly Earnings YoY (+3.9% actual vs +4% expected and +4.1% prev). The US labour market is starting to show signs of weakness and thus the Federal Reserve may start to change its outlook on rate cuts.

US bond yields dropped drastically in reaction to the much weaker than expected jobs data, with the 2-year bond yield dropping 17 basis points when the data was released. The yields managed to claw back some losses as the day progressed. The US 2-year bond yield (high: 4.89%, low: 4.71%) fell -0.06% to 4.82% while the 10-year yield (high: 4.64%, low: 4.46%) fell -0.08% to 4.51% resulting in the US Treasury Yield curve inversion widening to 0.31%. 

The US stock futures traded sideways through the Asian and London trading sessions ahead of the US Nonfarm Payrolls data. The weaker than expected data sent the S&P 500 futures up +0.79% in immediate reaction.

The US stock market opened higher from Thursday due to the NFP data. It then pulled back slightly due to weaker US Service PMI (49.4 actual vs 52.0 expected and 51.4 prev). However, the market then recovered from the weakness through the New York session. The S&P 500 finished +1.26% higher on the day (high: +1.48%, low: +0.73%), the Dow Jones rose +1.18% (high: +1.52%, low: +0.77%) while the Nasdaq increased +1.99% (high: +2.20%, low: +1.39%).

The crypto currencies rose over the weekend due to the weaker than expected US NFP data which boosted risk sentiment. Bitcoin (high: 64,637 +9.3%; low: 58,898 -0.4%) gained 8.2% while Ether (high: 3,171 +6.1%; low: 2,959 -1.0%) rose +5.1% over the weekend.
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Headlines & Market Impact

China’s president arrives in Europe to reinvigorate ties at a time of global tensions

Notable Snippet: Chinese President Xi Jinping kicked off a three-country trip to Europe on Sunday with the continent divided over how to deal with Beijing’s growing power and the U.S.-China rivalry.

European carmakers are losing ground to subsidised Chinese electric vehicles. Diplomats fret about alleged Chinese spies in European capitals. And China’s continued defence trade with Russia worries anyone in Europe who supports war-ravaged Ukraine and fears that the Russian army won’t stop there.

But Europe and China have hefty economic ties — EU-China trade is estimated at 2.3 billion euros per day — and Xi appears determined to rebuild and deepen relations with European leaders after a prolonged absence prompted by the Covid-19 pandemic.

Xi starts Sunday in France, whose president wants Europe to have more economic and strategic independence from other world powers. Then the Chinese president heads to Serbia and Hungary, both seen as China-friendly and close to Russian President Vladimir Putin, and recipients of substantial Chinese investment.

Xi’s trip will be closely watched in Washington for signs of diminishing European support for its key foreign policy goals. At the same time, there’s increasing uncertainty in Europe about future U.S. support for trans-Atlantic allies.

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Hamas says the latest cease-fire talks have ended. Israel vows military operation in ‘very near future’

Notable Snippet: The latest round of Gaza cease-fire talks ended in Cairo after “in-depth and serious discussions,” the Hamas militant group said Sunday, reiterating key demands that Israel again rejected.

After signs of progress, the outlook appeared to dim as Israel closed its main crossing point for delivering badly needed humanitarian aid for Gaza after Hamas militants attacked it. The defence minister claimed Hamas wasn’t serious about a deal and warned of “a powerful operation in the very near future in Rafah and other places across all of Gaza.”

Israel didn’t send a delegation to the talks mediated by Egypt and Qatar, and Defense Minister Yoav Gallant said that “we see signs that Hamas does not intend to go to any agreement.”

Hamas leader Ismail Haniyeh in a statement earlier said the militant group was serious and positive about the negotiations and that stopping Israeli aggression in Gaza is the main priority.

But Israel’s government again vowed to press on with a military operation in Rafah, the southernmost Gaza city on the border with Egypt where more than half of Gaza’s 2.3 million residents now seek shelter from Israeli attacks. Rafah is a key entry point for aid.

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Apple has big AI ambitions – at a lower cost than its rivals

Notable Snippet: “We continue to feel very bullish about our opportunity in generative AI and we’re making significant investments,” Cook told Reuters in an interview, noting the company has spent $100 billion over the past five years on research and development.

While Apple is expected to unveil new AI features at its annual software conference next month and overhaul its product lines with AI-ready chips, Chief Financial Officer Luca Maestri said Apple investors should not expect a huge change in how the company handles capital expenditures.

Responding to an analyst’s question, Maestri noted the company’s long standing practice of splitting the cost of manufacturing tools with its suppliers, which has kept Apple’s costs down and its cash generation up for more than a decade.

“We do something similar on the data centre side,” Maestri said. “We have our own data centre capacity, and then we use capacity from third parties. It’s a model that has worked well for us historically, and we plan to continue along the same lines going forward.”

That could be just as well for Apple, because it remains unclear whether AI features such as chatbots that run directly on a device will spur users to buy new phones, tablets or laptops, which remain Apple’s biggest source of revenue and profits.

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Phan Vee Leung
CIO & Founder, TrackRecord