Stocks are soaring as a trade deal between London and Washington bolsters optimism that more negotiations may be nearing completion. Market watchers are especially turning their attention to Geneva, where the US and China will attempt to work out differences this weekend. But risk assets caught another tailwind after President Trump said, “you better go out and buy stocks now,” and equities are now higher on the week following the slow start. Yields are jumping too, though, as an improved outlook for cross-border commerce is pushing economic growth projections north. Investors are also adding to their greenback, commodity and forecast contract exposures while reducing equity volatility protection instruments.
Unemployment Claims Signal Solid Labor Market
Both initial and continuing claims for unemployment benefits declined in the most recent reporting periods, signaling that the labor market remains on solid footing. Initial claims decreased by 13,000 to 228,000 for the week ended May 3 and were lower than the projection of 230,000. Requests for continued payments for the 7-day period closing on April 26, furthermore, dropped from 1.908 million to 1.879 million while economists expected 1.890 million. Four-week moving averages moved from 226,000 and 1.866 million to 227,000 and 1.875 million.
Productivity Weakens
Productivity as measured by output per hour during the beginning three months of the year fell 0.8% on an annualized basis, which was the first decline since the second quarter of 2022 and marginally worse than the consensus projection calling for a 0.7% contraction. In the preceding period, productivity climbed 1.7%. As productivity declined, labor costs per unit increased 5.7%, exceeding the estimate of 5.1% and the 2% gain in the final three months of last year.
Investors Turn Focus to Trump Growth Agenda
In the last few days, I’ve been writing that a trade deal or an incrementally dovish Fed could allow stocks to reach for further upside. While yesterday’s FOMC was on the hawkish side, this morning’s UK agreement helped improve sentiment as it relates to resolving other conflicts and is causing investors to focus on the short-term positives of the Trump policy mix, which include lighter taxation, milder regulations and lower energy costs. Indeed, market participants are ready to turn the page on international tensions related to cross-border commerce and begin to get excited about earnings growth and economic progression in the coming quarters. I expect the next few weeks to feature more agreements and great performance from US equities and the greenback. Yields though, can go higher, as activity and confidence heat up.
International Roundup
Bank Of England Cuts Key Rate
The Bank of England (BOE) chopped its key rate of 4.5% by 25 bps, as expected considering that the central bank previously signaled that it was making progress with easing price pressures. While five policymakers supported the measure, two rejected it, explaining that they wanted a 50-bp reduction, and two others pushed for no change.
While Home Price Decline Reverses
After declining for two-consecutive months, home prices climbed 0.3% in April m/m and were up 3.2% y/y compared to March’s results of -0.5% and 2.9%. Analysts anticipated -0.1% m/m and 2.6% y/y. April produced the fastest annual increase of the year. Lower mortgage rates have helped the sector. Other tailwinds include wage increases outpacing inflation and shoppers rushing to complete deals before changes in home purchases went into effect.
Bank of Japan Eyes Future Rate Increases
Minutes from the Bank of Japan’s (BOJ) March meeting show that policymakers believe the country’s key real interest rate is at “significantly low levels” and that future increases may be appropriate if the country’s economy continues improving. The BOJ raised rates twice in 2024 and once in January. Among policymakers, some emphasized that the central bank should carefully assess the impact of trade policies as well as the effects of interest rate hikes. The country’s key rate is currently 0.5%.
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