NFP and Fed Meeting Bullish for Risk Assets

May 6, 2024

| Fullerton Markets

NFP and Fed Meeting Bullish for Risk Assets">

Stocks gain and dollar drops after a softer-than-expected US jobs report fueled hopes that the Fed could start cutting rates soon.

The global market witnessed significant developments over the past week, with events like the Fed meeting and the release of the US nonfarm payrolls report impacting capital markets worldwide. Both events elicited positive responses from investors, contributing to a surge in the global stocks.

US stock markets surged on Friday following the release of weaker-than-expected April employment figures, bolstering hopes for a potential swift interest rate cut by the Federal Reserve. Dow Jones Industrial Average rose by 450.02 points to close at 38,675.68, marking a 1.18% increase.

The April nonfarm payrolls report revealed the addition of 175,000 jobs, falling short of the expected 240,000. The unemployment rate edged up slightly from 3.8% to 3.9%, according to data from the US Bureau of Labor Statistics. Wage data also came in below expectations, signaling encouraging signs for inflation.

wmr 1

NASUSD (H4). After a bearish period in US stocks, the movements of the last 2 weeks confirm the Reversal point. Approaching Resistance, a correction to 17,500 - 17,700 would be a better entry to buy.

After last week’s Fed meeting, Fed Chair Jerome Powell indicated that the Fed is prepared to take action if the unemployment rate rises. The data, while negative for the job market, eased concerns among investors about the economy overheating or re-accelerating, reigniting hopes for interest rate cuts. While unfavourable for employment, the market sees this scenario positively as it suggests the Fed might start cutting rates later this year.

Following weaker-than-expected job growth and slowing wage growth in April, traders anticipate the Fed to cut rates for the second time before the end of the year. The FedWatch tool from the CME Group, which tracks futures market prices, indicates close to a 50% chance of a 25 basis point rate cut in September.

FOMC meeting

Last week, the Fed maintained its target range for the federal funds rate at 5.25%-5.50%, in line with market expectations. While deciding to keep rates unchanged, the committee's post-meeting statement noted a lack of progress towards its 2% inflation target. The statement stated that it would be inappropriate to lower the target range until there is more confidence towards achieving the 2% inflation target.

Fed Chair Jerome Powell further elaborated during the press conference. "Inflation is still too high," he said. "It is uncertain whether further progress can be made, and the path forward is also uncertain."

However, Powell indicated that the Fed's next move is unlikely to be a rate hike, much to the delight of investors, leading to a stock market rebound after his remarks. If the unemployment rate shows an upward trend in the coming months, expectations for Fed rate cuts will likely increase and exert downward pressure on the US dollar.

wmr 2

USDJPY (H4). A strong rejection from the 160 level influenced by the intervention of Japanese officials changed the direction. Possible rebound to the 155 or 156 levels before continuing the bearish momentum.