Risk On Right On Time

by Adam Button

The seasonally positive trend in April got traction almost immediately with stocks racing out of the game. The return to risk-on ascent with USD selling following stronger than expected US jobs report on Friday on the back of solid manufacturing ISM on Thursday and a new record services ISM on Monday. This suggests a return to the pattern of strong macro data inducing higher indices, better prospects of global growth and weaker JPY and USD. But is it too early for this theory? All points to higher commodity currencies and rising indices, but weakness in oil raises questions ahead.

Citi Economic Surprise Index Chart

We wrote about positive April seasonals earlier in the week and that trade delivered with markets in a great mood to start the new month. The S&P 500 rallied 1.2% to a new record high and above 4000 for the first time.

US services ISM shot up to a new record of 63.7 vs exp 59 after manufacturing ISM hit 64.7 compared to exp 61.5. The surveys from Markit were also strong, including a survey high (since 2011) in the Canadian measure. Importantly, all the surveys highlighted shortages of raw and intermediate materials, suggesting pricing pressures in the months ahead.

OPEC+ appeared to do its part to loosen the oil market with a surprise decision to raise quotas in May. They also pre-announced higher production in June and July, adding more than 2mbpd total. Initially the market balked but had a re-think and crude rose 3.5%, perhaps owing to the slow paces of increases, along with the certainty three months out.

In FX, the dollar slid as 10-year Treasury yields back off by 7 bps to 1.67%. That led to a relief rally in the euro and commodity currencies.

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