The ISM Services PMI in the US dropped sharply to 49.4 in April of 2024 from 51.4 in the earlier month, reflecting the first contraction in services sector activity since December of 2022, and surprising market expectations of 52. It was only the second decline in activity since the pandemic-driven crash in the second quarter of 2020, aligned with an unexpected contraction for manufacturing, to indicate that higher borrowing costs from the Fed may be having a larger impact on business conditions. New orders rose at a slower pace (52.2 vs 54.4 in March) and output was softened considerably (50.9 vs 57.4), driving firms to shed jobs at a faster pace (45.9 vs 48.5) to mark a third period of lower employment. In the meantime, prices accelerated sharply (59.2 vs 53.4) amid higher costs of chemicals, metals, fuels, and food, to underscore the broad-based inflationary pressures in the US economy.

Stocks in the US surged on Friday, fueled by a weaker-than-expected April jobs report, which pushed expectations for a Federal Reserve interest rate cut to September from November. The S&P 500 gained 1.2%, the Nasdaq advanced 2% and the Dow Jones closed 450 points higher. The US economy added 175K jobs in April, falling short of the estimated 243K and signaling a significant slowdown from March's addition of 315K jobs. Additionally, the unemployment rate ticked up to 3.9% while wages rose less than forecasts. Apple rallied nearly 6% after announcing a $110 billion share buyback and reporting better-than-expected earnings and revenue. Amgen also surged 11.8% on an earnings and revenue beat, to book its best day in nearly 15 years, while Cloudflare tumbled 16.4% after issuing weak revenue guidance for the full year. On the week, the Dow added 0.9%, while the S&P 500 gained 0.3% and the Nasdaq climbed by 1.2%.

It will be a relatively quiet week in the US, with only the Michigan consumer confidence index and speeches by Fed officials worth attention. The big-cap earnings season is poised to conclude with releases from Vertex Pharmaceuticals, Walt Disney, BP, Toyota, Uber, Airbnb, and Shopify. On the global front, central banks from the UK, Australia, Brazil, Sweden, Malaysia, and Poland are set to announce their interest rate decisions. Additionally, China will be in focus with Caixin Services and Composite PMIs, alongside foreign trade, inflation rates, and new loans data. In Europe, attention will turn to Germany for updates on factory orders, industrial production, and trade balance figures. Inflation data will be closely watched in Mexico, Brazil, the Philippines, and China, while GDP growth rates will be scrutinized in the UK, the Philippines, and Indonesia. Finally, services PMIs will be released in Spain, Italy, and Brazil.

The yield on the US 10-year Treasury sank to the 4.47% mark on Friday after a colder-than-expected jobs report drove markets to anticipate expectations of rate cuts by the Federal Reserve. Non-farm payrolls in the US rose by 175,000 in April, firmly below market expectations of a 243,000 increase, while the unemployment rate unexpectedly ticked up to 3.9%. It was the softest pace of job growth in six months, suggesting that restrictive rates could be having a higher impact on the US labor market, and shedding light on Fed Chair Powell’s remarks that the US central bank could loosen monetary policy to aid a weakening labor market. Consequently, funds futures showed that a majority of the market positioned for a rate cut in September, compared to expectations of a November pivot prior to the release. Additionally, investors positioned for two cuts this year, compared to earlier expectations of a sole rate cut.

Average hourly earnings for all employees on US private nonfarm payrolls edged up by 7 cents, or 0.2%, to $34.75 in April 2024, after a 0.3% increase in the prior month and below market estimates of a 0.3% rise. In April, average hourly earnings of private-sector production and nonsupervisory employees edged up by 6 cents, or 0.2%, to $29.83. Over the past 12 months, average hourly earnings have increased by 3.9% in April, the least since June 2021, after a 4.1% advance in March and slightly below market estimates of a 4% increase.

The unemployment rate in the Euro Area stood at a record low of 6.5% in March 2024, the same as in the preivous three months and in line with market expectations. The number of unemployed individuals decreased by 94 thousand from the prior month to 11.087 million. Meanwhile, the youth unemployment rate, reflecting those under 25 seeking employment, went down to 14.1% in March from 14.4 in February. Across the major Euro Area economies, Spain continues to report the highest jobless rate at 11.7%, followed by France at 7.3% and Italy at 7.2%. Conversely, Germany recorded the lowest rate at 3.2%. A year earlier, the jobless rate was slightly higher at 6.6%.