US and European futures are trading higher while traders are digesting the US NFP data released last week and the ongoing geopolitical tensions in Ukraine. Inflation and geopolitics remain at the top of the agenda for traders while they wait for this week’s most important economic event, which is the FOMC minutes.
The US NFP data released on Friday showed that nonfarm payrolls increased by 431,000 for the month, while the unemployment rate remained at 3.6 percent. Dow Jones polled economists, who predicted 490,000 people on payrolls and 3.7 per cent unemployment.
The US jobs report hasn’t affected the short-term trajectory for the Fed to increase interest rates a number of times this year, and some of them are most likely to take place concurrently. If we had seen a significant miss in terms of the US jobs report, then there was the slight possibility that the Fed may have thought about revising its policy
The Federal Reserve will release minutes from its March meeting on Wednesday, where it hiked interest rates for the first time since 2018.
The Fed minutes will be the highlight of the week, as the central bank is expected to reveal additional details on its balance sheet reduction plans. A drop in the Fed’s securities holdings, which total over $9 trillion, would be another step toward tightening policy. Officials from the Federal Reserve have stated that they intend to begin reducing the balance sheet as soon as possible. President of the Kansas City Fed, Esther George, has stated that the Fed’s balance sheet will need to be drastically reduced. She believes the Fed’s Treasury holdings may have pushed down the 10-year rate, leading the yield curve to invert.
Futures markets predict that the Fed will expand its firepower at its next meeting in early May, rising interest rates by 50 basis points, or half a percentage point. At its March meeting, the Fed raised rates for the first time by a quarter-point. Market players are also pricing nearly eight interest rate hikes for this year, and each one of them is to be 25 basis points. The US Treasury yields have risen at a breakneck pace as market expectations for interest rates have altered. For the first time since 2019, the two-year Treasury yield surpassed the 10-year yield or inverted. The market interprets this as a harbinger of an impending recession.
A number of other Fed officials will also speak this week, including Fed Governor Lael Brainard, who will speak on Tuesday. Factory orders are due Monday, foreign trade and ISM services are due Tuesday, and wholesale trade is due Friday.
Oil prices are highly likely to remain volatile this week as the crude oil price violated an important support level of $100. The move took place because investors reacted to the massive strategic oil reserve release from the US. However, it is important to keep in mind that this short-term measure to target lower oil prices is likely to run out of course soon as this doesn’t resolve the long-term problem. The issue here is two fold: firstly, there is a clear supply shortage on the market, and secondly, we have flaring tensions between the US and Russia over its invasion of Ukraine. As long as we don’t see these issues addressed, it is not likely for oil prices to fall significantly from their current levels.
Tesla is the stock to watch this week as, over the weekend, we learned about their vehicles deliveries for the first quarter. The company reported 310,048 electric vehicle deliveries, and the total electric vehicle production was 305,407. The production of Model 3 and Model Y made up the majority of cars from this number.
Market players were expecting Tesla to produce 317K cars for the first quarter, and the estimates have been running from 278K to 357K. The company has missed the analyst’s top headline number, and today the stock is likely to be highly volatile. Tesla has blamed its poor performance in terms of missing the estimates on the going challenges related to supply chain issues and factory shutdowns. Remember, in China; we still have a zero-tolerance policy regarding Covid. Very recently, the country shut down its main cities, which enhanced the chip supply issues. The reality is that Tesla is still relying on China for some parts of its supply chain. Having said that, Tesla is making serious progress in terms of its independence of supply chain parts, and recently, it opened a factory in Brandenburg, Germany. The company is also expected to open another factory in Austin, Texas.