Lessening Recession Fears in Spite of Persistent Downside Risks – Currency Thoughts

Lessening Recession Fears in Spite of Persistent Downside Risks

May 2, 2025

A discernible sigh of relief could be heard in the markets after April’s surprisingly healthy U.S. labor situation report. Other lifts came from a 1.7% drop in the price of West Texas Intermediate oil and European manufacturing purchasing manager surveys. Key U.S. stock market indices are up by 1-1.3%, which have correlated this time with rising, not falling, long term interest rates. Ten-year sovereign debt yields are up by six basis points in the United States and Germany, five bps in France, four bps in Spain and 3 bps in Italy.

The dollar is down 0.8% on a weighted basis, with losses of 1.3% against the euro, 1.1% versus the Australian and New Zealand currencies, and 1.0% relative to the yen. Prices for Bitcoin and gold have risen 0.7% and 1.0% so far today.

U.S. nonfarm payroll growth last month of 177k was almost 50k greater than analysts anticipated although estimates of employment growth in February and March got revised lower by a combined 58 thousand, and manufacturing, the  intended beneficiary of President Trump’s tariff program, suffered a 1000 drop in workers following March’s 3k rise. Labor market participation unexpectedly rose to 62.5%. The 4.2% unchanged unemployment rate matched expectations, but the U6 rate of un- and underemployment slipped marginally, defying expectations of a slight rise. Most encouraging, these strengths were not accompanied by an acceleration of wage pressure, so while Fed officials don’t need to cave to President Trump’s verbal calls for easing, neither do they need to consider raising the interest rate. Contained monthly increases of just 0.2% in average hourly wage earnings in both February and April now sandwich the rise of 0.3% in March, and the year-on-year increase for last month of 3.8% matched March’s nine-month low of 3.8%.

Euroland’s manufacturing purchasing managers index for April was revised 0.3 points above the preliminary indication to 49.0, indicating the shallowest contraction in 32 months and evoking the conclusion that the sector may at  long last be stabilizing. Despite a further drop in exports, order backlogs are better. confidence in the future has been lifted by Germany’s plans to bolster defense spending and by lessening fossil fuel energy costs. The three largest economies using the euro saw their individual PMI indices improve to a 32-month high in Germany’s instancre, a 27-month high in France, and a 13-month high in Italy. The sector’s greater confidence may yet be shattered, as global tariffs are still a source of great uncertainty. Also, competition from cheap Chinese goods is likely to intensify.

Other Euroland data out today provided some disappointment. Consumer price inflation in April did not slow further from March’s 2.2% as pundits were forecasting. The problem was a 0.4 percentage point increase in service sector inflation to 3.9%. Also, the jobless rate stayed at 6.2% in March. This was the sixth straight month at that record low, but forecasters were hoping for an even lower reading.

Among other purchasing manager surveys reported today all measuring manufacturing,

• India’s index edged 0.1 point higher to a 10-month high and robust 58.2.
• The Filipino PMI also exceeded the 50 threshold for positive growth with a score of 53.0, 3.6 points above the March reading and at a 4-month high.
• Taiwan, Indonesia, Malaysia, Thailand, and South Korea reported sub-50 readings in April, respectively a 16-month low of 47.8, a 4-month low of 48.6, a 14-month low of 49.5, and a 31-month low 47.5. Each of these cases has in common a high dependency on trade and therefore great vulnerability as the United States goes all in on tariffs.
• The Swiss manufacturing PMI sank by a hefty 3.1 points to a 9-month low of 45.8.
• Whereas Sweden’s PMI rose 0.6 points to a robust and 35-month high of 54.2, energy-producing Norway’s PMI fell 4.0 points to a 57-month low of 46.1. Only in the earliest months of Covid was such lower.
• Turkey’s PMI score of 47.3 matched the  prior month’s 5-month low.
• The Czech PMI improved to a 34-month high of 48.9, but Poland’s reading slipped half a point to a 3-month low of 50.2.
• Brazil’s manufacturing PMI dropped 1.5 points to a 15-month low of 50.3, signaling effective stagnation.
• Mexico’s 48.5 reading was the lowest score since April 2021.
• The Absa-compiled South African purchasing managers index fell sharply by 4.3 points back to a 2-month low of 44.7.

Japan’s jobless rate continues to throttle between 2.4% and 2.5%, printing at 2.5% in November, January and March and at 2.4% in December and February.

Indonesian consumer  price  inflation accelerated to an 8-month high in April and exceeded expectations at 1.95%.

Australian producer price inflation stayed level last quarter at the prior quarter’s 3-year  low of 3.7% and down from 4.3% in the first quarter of 2024. Australian retail sales in February rose 0.2% on month and 3.5% on year.

Copyright 2025, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

Tags: Euroland CPI and unemployment, manufacturing purchasing manager surveys, U.S. jobs report April 2025

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on Friday, May 2nd, 2025 at 8:36 am and is filed under New Overnight Developments Abroad – Daily Update.
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