UUP - 236000 Jobs Added In March 11th Straight Beat GSG Commodities ETF In Focus

2023-04-07 09:41:07 ET

Summary

• Stock futures rose slightly and yields crept higher following a better-than-forecast March NFP report.
• Following weak manufacturing and jobs data earlier this week, the overall employment situation still appears decent.
• I see upside ahead in the commodities space as the dollar weakens, and the GSG commodities ETF sports a bullish reversal signature.

236,000 jobs were created in March vs. expectations of 230,000. The unemployment rate fell to 3.5% from 3.6%, still above the 3.4% low from January. Average hourly earnings were up 0.3%, up 4.2% on a year-on-year basis. That's down 0.4 percentage point from the previous annual rate reported for February.

Meanwhile, the labor force participation rate jumped to 62.6% from 62.5%. Manufacturing jobs fell by just one thousand and temporary positions fell by more than 10,000.

Net revisions from the previous two months were -17,000. Private payrolls actually proved weaker than expectations with a 189,000 rise compared to the consensus outlook for 218,000.

March Adds 236,000 Jobs, Near Expectations

The downward trend of net employment gains continues, though it also was the 11th consecutive better-than-expected headline NFP number. We continue to wait for a sharp slowdown in net hiring.

Monthly Employment Gains Trending Lower

11 Straight NFP Beats

The market reaction to the March labor situation report was quiet. Yields initially rose from 3.30% to 3.35%, but the rate is still down significantly on the week. Looking ahead to the next Fed meeting, there was a slight uptick in the chances of a Fed hike - the CME Fed Watch Tool shows a 56% chance of one more quarter-point increase compared to a 43% probability of a pause at the May meeting in less than a month. That will be the big debate upcoming, and next week's CPI and PPI data will be pivotal in that discussion.

Treasury Rates Rise Post-NFP

CPI, PPI, FOMC Minutes In Focus Next Week

Equity futures were tame after the labor report crossed the wires. Futures inched higher, but today's Good Friday holiday may dampen volatility.

Coming into today's jobs report, the US Dollar Index has been on the decline. Disappointing domestic data earlier this week further supports the notion that economic conditions are deteriorating. Bonds have been bid while equities have hung in there. But as the growth outlook wanes, the greenback is not the place to be so long as the move is not caused by a shock - that would lead to a flight to quality and a rise in the dollar in my view. For now, momentum is with the dollar bears, and that's helpful for commodities, all else equal.

US Dollar Index: Dropping To Near 52-Week Lows As The Economy Softens

According to the issuer , the S&P GSCI Commodity-Indexed Trust ( GSG ) seeks to track the results of a fully collateralized investment in futures contracts on an index composed of a diversified group of commodities futures. It's an efficient ETF to gain exposure to commodities. GSG is primarily allocated to energy commodities, so monitoring moves in oil is critical. Of course, the big move last weekend was the surprise oil production cut by OPEC+ that helped global energy commodities.

GSG: Heavily Exposed to Energy

The Technical Take

What's striking about GSG right now is that the fund featured a bearish breakdown in March, but that appears to be a bullish false breakdown as the fund is back above not only the key $19 to $20 area, but it also has rallied above a downtrend line dating back to Q4 2022. It was a year ago when commodities rose sharply following Russia's invasion of Ukraine - that move came in intense volume, but a peak was notched during the middle of last year. This bullish reversal could lift GSG to near $23. Watching moves in the US dollar will be critical.

GSG: Bullish False Breakdown, Room To The Upside

The Bottom Line

March payrolls were the slowest in 27 months, but it was yet another stronger-than-expected headline gain. Still-solid employment growth last month came alongside moderating wage growth and what's likely to be easing inflation. With a falling unemployment rate and giveback in average hourly earnings, it's perhaps a victory for the "no recession" camp for now. The dollar inched up, but I will be watching how commodities trade over the coming weeks as higher energy prices could put a twist into how the corporate earnings situation unfolds.

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