April 3 – Stocks have reversed course through the morning to trade in the green at mid-day following some well-received softer than expected economic data, with the Nasdaq leading the way higher, followed by the S&P 500, then the Dow Jones. The VIX has also cooled through the morning, now down to 14.4 after starting the day above 15. The U.S. dollar is down sharply, aiding the commodities, as it trades around 104.1 at the time of writing. Treasuries are now roughly unchanged on the day after strength earlier in the session, with 10-year yields trading around 4.36% and 2-year yields trading just above 4.68%. Crude oil is up yet again, with the nearby WTI contract closing above $85 yesterday for the first time since late October and pushing up to $86.20 this morning before falling back from its highs. The ags are mixed again, with the wheat complex leading a push higher after yesterday’s losses, while the cattle complex does the opposite, trading down hard and wiping out yesterday’s gains.
Economic data was more mixed today after the hotter than expected readings earlier in the week, with this morning’s March U.S. Services PMI readings from both S&P Global and ISM showing a step back from the month prior. The S&P Services PMI fell to 51.7 in March, in line with expectations but down from March’s 52.3 reading. S&P’s Composite PMI was slightly firmer at 52.1, driven in large part by a sharp uptick in factory activity, consistent with the hotter than expected manufacturing data this week that dashed hopes of the doves. However, softer than expected services data helps the doves’ case today, with the ISM Services PMI falling to 51.4 in March, well below expectations of a slight increase from February up to a 52.7 reading. While the softness on its surface suggests a slowdown that could be a sign for potential easing of monetary policy, the details of today’s releases still suggest lingering pressures from wage inflation. Both readings point to continued difficulties in the service sector of finding/retaining employees, again adding further intrigue to Friday’s upcoming jobs report. We’ll look for confirmation following this morning’s hotter than expected ADP employment report that showed consistently strong job gains, but more importantly get insight into March wage growth for signs of lingering inflation.
The energy markets are seeing strength today, in part due to geopolitical risk premium built in as the world awaits Iran’s response to this week’s Israeli strike and the impact on Russian refinery capacity following recent strikes is assessed, but also from fundamental support following the OPEC+ decision to maintain their existing production cuts. This morning’s DOE report also brought some surprises, with U.S. gasoline inventories falling by 4.26 Mb on strong demand, while diesel inventories also fell by 1.27 Mb as exports hit a six-month high. Despite the draws in refined products, U.S. crude oil inventories saw their eighth build in the last nine weeks, with U.S. crude export demand remaining weak despite the aforementioned OPEC+ cuts. With nearby WTI crude now trading in territory not seen in over five months above the $85/barrel level, it will be very interesting to keep an eye on where it closes today to see if it can maintain its recent rally.
Taiwan was hit with their worst earthquake since 1999 at around 8:00 AM local time today, with a magnitude of over 7 (reports seen ranging from 7.2 – 7.7). While the humanitarian perspective is obviously priority, and our thoughts go out to all those impacted, the economic perspective also garners major attention because of the huge importance of the country to the global chip sector amid the current market backdrop of AI mania. The world’s largest chipmaker, Taiwan Semiconductor Manufacturing Co, was reportedly forced to evacuate and shut down some plants and facilities to inspect for damage, with other companies also forced to take similar actions. While the impact thus far appears to be somewhat limited, the possibility for downstream supply chain disruptions now grows, with so many electronics manufacturers dependent on chips from Taiwan.
