April 30 – Stock futures turned notably lower on this morning’s economic data release, as worries about a U.S. recession ramp up amid the current tariff war. The VIX rallied to trade near 27 after that data release, while the dollar index rallied to trade near 99.4. Yields on 10-year Treasuries firmed to trade near 4.17%, while yields on 2-year Treasuries traded near 3.62%. Crude oil prices dropped on the above recession concerns, as they trade now below $60 per barrel again. The grain and oilseed sector was mixed to weaker overnight.
The ADP employment report revealed that the private sector added just 62K jobs in April, down from analyst expectations of 125K. Furthermore, the March total was revised to 147K private sector jobs created, down from the 155K originally reported. This suggests that the uncertainty of this month’s tariff war led employers to hold back on adding new positions until more was known about the outcome of the negotiations. The government will release its monthly jobs report for April on Friday. The surveys to develop its estimates were conducted in the week following President Trump announcing his reciprocal tariffs when uncertainty was perhaps the highest, leading to some concerns about how low Friday’s overall job creation number might end up being, with the chance it could be negative – meaning jobs lost.
Today’s initial gross domestic product reading for the first quarter of the year suggests that the economy contracted at an annual rate of 0.3% during the period, down from 2.4% growth in the fourth quarter of last year, and below analyst expectations that it would show 0.2% growth. Does this mean that we are in a recession? Possibly, but not necessarily. A recession is defined by two consecutive quarters of negative GDP growth. We now have one quarter of negative growth behind us, if these numbers are verified through the next couple of revisions. Historically, we have a recession on average every 6.5 years, so this doesn’t mean the end of the world, but it should raise concerns. Today’s data suggests that the most notable impact on the negative growth was a rise in imports ahead of the tariffs, combined with a decrease in government spending as impacted by the Department of Government Efficiency (DOGE). These negatives were partially offset by an increase in investment, consumer spending and exports. Nonetheless, it was a negative number, so Wall Street responded negatively.
The employment cost index rose 0.9% quarter over quarter in the first quarter, matching its growth in the fourth quarter of last year, and matching analyst expectations. The employment cost index provides a measurement of wage inflation for employers. The index was up 3.6% year-on-year in the first quarter, down from 3.8% in the fourth quarter of last year. That suggests that wage inflation pressures eased modestly in the first quarter.
China’s official manufacturing purchasing managers index fell notably to 49.0 in April, which was below analyst expectations of 49.8, and its lowest level in 16 months. A number below “50” indicates month-on-month contraction. The new order subindex dropped to 49.2 in April, down from 51.8 in March, with new export orders plunging to 44.7, which is just above the darkest days of the Covid pandemic when it hit 44.2. The latter number reflected massive order cancellations and factory shutdowns due to the 145% reciprocal tariff placed on China by President Trump. The employment subindex fell to 47.9, while finished goods slipped to 47.3. China’s foreign minister traveled to Brazil this week for a two-day meeting of BRICS foreign ministers, seeking a statement of unity versus the United States. However, the group failed to reach a consensus on the statement, again illustrating the rising rift within BRICS developing over the past year.
China’s Foreign Ministry released a video with bilingual subtitles today, titled “Never Kneel Down!” It is China’s way to communicate to the world Beijing’s resistance to the “bullying” of the United States, while seeking to influence other countries to join it in its resistance. China released the video immediately after U.S. Treasury Secretary Scott Bessent called on China to be accountable for de-escalation in a media interview. The video seeks to encourage countries currently negotiating with the United States to “stand up for themselves to keep the possibility of cooperation alive, while compromise snuffs it out.” This illustrates how critical it is that President Trump be able to soon start announcing trade deals with lower tariffs and restrictions with major trading partners to establish that momentum. The coming weeks are critical for determining the longer direction of this major sea change shift. President Trump isn’t just negotiating trade deals, but he is seeking to restructure the world order in a different direction than China would like to take it. China sees this as a defining moment in its ability to seek its longer-term goals, as does President Trump. This is expected to be a factor in every negotiated deal. China realizes that, and it sees this as a fight for its survival. It fears that it will die if it is not at the top. It will not give in quietly.
