Source: AFP.
The near-term US outlook remains challenging for investors.
Source: Bank of Singapore, Bloomberg.
March’s data showed the labour market remains too tight for the Federal Reserve to lower inflation to its 2% target without further interest rate hikes.
Payrolls rose 236,000 - slower than January’s 472,000 and February’s 326,000 surges - but still above the 179,000 average gain in the decade before the pandemic as the first chart shows. Unemployment also dipped to just 3.5% while average hourly earnings increased 0.3% in March and 4.2% compared to a year ago. We expect the Fed will thus raise its fed funds rate at least once more in May by 25bps to 5.00-5.25%
Source: Bank of Singapore, Bloomberg.
At the same time, US recession risks are growing.
The chart above shows the ISM surveys of firms’ sentiment faltered in March. Manufacturing fell to a new post-pandemic low of 46.3, the fifth month in a row the survey has signalled the sector is shrinking, while services weakened to only 51.2.
Source: Bank of Singapore, Bloomberg.
In addition, the inversion of the US yield curve - a leading indicator of recession - is starting to wane as the last chart shows. Investors are anticipating last month’s US bank failures will force the Fed to cut rates. But officials warn sticky inflation will make the Fed unlikely to ease policy this year.
We thus stay cautious on the outlook. To hedge against rising recession risks, we continue to favour safe-haven assets including US Treasuries, high-quality corporate bonds and gold.
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