Summary: Amongst a global backdrop of slowing economic growth, the US economy continued to strengthen on the back of robust economic data, easing geopolitical tensions, and the broad-based appreciation of the USD. In US / International trade relations, the month of April further saw a tit-for-tat trade dispute escalation between the US and China. Fears around the rising trade tensions early in the month were tempered by conciliatory overtones as China invited the US to engage in trade policy negotiations. Ongoing global pressures weighed on markets, as April saw a joint military intervention in Syria between the US, the UK, and France. The US also threatened to impose additional sanctions on Russia, which helped push oil prices to their highest levels since 2014. In the rates markets, the 2s10s yield curve continued to flatten in April, with the curve reaching its tightest levels since 2007 before reversing and ending the month relatively unchanged at 46 bps. The 2s30s curve marginally flattened finishing the month at 62 bps. The US 10-year Treasury yield reached 3.0%, its highest level in 4 years.
FOMC Meeting: The March FOMC meeting minutes portrayed Committee's confidence in outlook on above-trend growth and that inflation would move higher and meet their 2% target. In discussion on the risks to the outlook, the Committee deliberated whether the forecast for the fiscal stimulus boost was too high or too low. Also, tariffs and the risk of trade tensions were mentioned but not overly stressed.
US Non-Farm Payrolls: While March non-farm payrolls gained 103K jobs, a bit weaker than expected 185K, the underlying strength in the labor markets remains undeniable. Coming after a quite warm February, the unseasonably wintery weather in March led to the softening in construction and retail employment. The March three-month moving average of non-farm employment gains is now at 202K and the 12-month moving average is at 188K.The unemployment rate fell 7 bps to 4.07% and average hourly earnings accelerated to 2.7%.
Q1 US GDP: The US economy expanded by 2.3% in the first quarter, which beat estimates (2%), but recorded the slowest pace of growth since Q1, 2017. The positive contributor was the stronger-than-expected federal government spending (though some seasonal effects may lead us to fade this number going forward). The main detractor not surprisingly was private domestic demand which rose by an annualized 1.7% and was mainly driven by a slowdown in consumption growth (1.1%) which could be transitory
Retail Sales: US retail sales came in better than expected in March, with headline retail sales increasing 0.6% (mom) and the core measure rising 0.4% (mom). This positive print was mostly driven by 2% (mom) increase in autos and auto parts sales, followed by furniture, electronics and online retail. However, March retail sales report had downward revisions for both January and February that offset some of the strength in March sales.
US CPI: Headline CPI print came in at -0.1% (MoM), and at 2.4% (YoY), while the core measure rose 0.2% (MoM), and 2.1% (YoY), as expected. The headline number was driven by a decline in energy prices and a mean-reversion in post-hurricane rise in auto prices.
