Geopolitical Risks at the Forefront Ahead of NFP Data

Rates fall ahead of tomorrow’s NFP report. Swap rates and Treasury yields were higher throughout most of the day but tumbled in the afternoon, closing 2-4bps lower on the session. Geopolitical tensions drove the move, as Israeli Prime Minister Netanyahu said that Israel would act against Iran and “whoever harms us or plans to harm us.” The comments drove crude oil prices to multi-month highs, as Brent reached above $90 per barrel for the first time since October. Meanwhile, tomorrow’s NFP looms large; the US is expected to have added 214k jobs in March, a slowdown from 275k in February. The unemployment rate is expected to decrease to 3.8% from 3.9% previously.

Some Fed presidents are concerned about recent inflation figures. After recently shifting his projection from two 2024 rate cuts to one, Neel Kashkari stated today that “if we continue to see inflation moving sideways, then that would make me question whether we needed to do those rate cuts at all.” He referred to this year’s inflation prints as “a little bit concerning”, while Patrick Harker said that “we’re not where we need to be.” The comments follow Chair Powell’s statement yesterday that the recent data may be a temporary “bump,” though it remains unclear. Austan Goolsbee offered similar thoughts today, as he believes that “two months should not knock us off the path back to target.”

Former BOJ board member says central bank may wait until fall for next hike. According to Makoto Sakurai, a former BOJ board member, the BOJ is likely to wait until fall before deciding to raise interest rates again. He said, “They conquered the mountain [reversing negative rates] and there are no big urgent issues left now.” He also forecasts a 25bp rate hike every 6-months starting next year. Despite recent Yen valuation worries, he also said, “I don’t think foreign exchange rates will be a driving factor determining monetary policy.”