Last week delivered a strong conclusion to a very strong month of March which largely offset what was a very tumultuous start to the year. Risk markets were supported last week by Federal Reserve Chair Janet Yellen’s dovish comments on Tuesday wherein she reiterated the view of a slow and cautious approach to rate hikes looking forward into 2016. Fed chatter remains a dominant force in the markets while economic and fundamental data points continue to paint a lukewarm portrait of subdued growth and anemic corporate earnings. Subdued growth and limited rate hike rhetoric from the Fed allowed the 10yr U.S. Treasury bond yields to fall nearly 11bps to 1.79% on the week.
Economic data points last week were generally mixed with the more notable releases covering employment, personal spending & income, manufacturing, and inflation. March saw 215,000 new jobs created, beating expectations but an increase in the participation rate took the headline unemployment rate up to 5%. Data on personal spending and income were disappointing as both measures missed expectations and prior spending estimates were revised downward. The ISM and PMI manufacturing survey results were both relatively encouraging, indicating marginal expansion in the U.S. manufacturing sector. The closely watched Fed inflation indicator, core PCE, came in unchanged at 1.7% which remains well below the Fed’s targeted level of 2%. Oil dropped sharply on the week (-6.9%), as U.S. oil inventories hit another all-time record level of 534.8 million barrels and Iran pushed oil production levels to a four year high. Comments out of Saudi Arabia regarding Iran’s production levels cast doubt on the feasibility of OPEC’s proposed production caps which have supported Brent crude oil pricing over the past few weeks.