China's service industry grows while weak US data stabilizes Oil prices

What’s happened in the markets?

China's service sector expanded at the fastest pace since November 2020, with the Caixin China General Services PMI rising to 57.8 in March 2023 from 55.0 in February, according to the latest data. The increase in activity was buoyed by a surge in new orders and employment, following the recent easing of COVID-19 measures. The report noted that new orders rose at the fastest pace in 28 months, with new export business expanding at the quickest rate since the series began in September 2014.

Employment also increased at the fastest rate since November 2020, while the rate of accumulation picked up on the month but was mild overall. Input cost inflation rose to a seven-month high, driven by higher wage costs and raw material prices. However, output cost inflation rose only marginally as limited firms' ability to pass on higher cost burdens to clients was noted. Finally, business sentiment deteriorated to a three-month low.

The latest economic data points to a robust recovery in China's service sector, which has been hit hard by the pandemic. However, rising input costs and subdued business sentiment could weigh on the sector's growth in the coming months. Meanwhile, the continued surge in gold prices reflects the growing nervousness in the markets as investors seek safe-haven assets amidst the current economic uncertainty. Gold rally continued as yields fell further to fresh cycle lows, and risk sentiment took a hit from weak US economic data. Despite a somewhat stronger US dollar, gold prices pushed to fresh highs of $2032, with all eyes on the all-time high of $2075.

What to watch?

Commodity markets were weighed down by a weaker-than-expected ADP jobs data and a miss in US ISM services print, dampening sentiment across the board. Despite this, crude oil prices remained range-bound as supply-side issues provided a floor. The latest EIA inventory data showed a fall in crude stockpiles by 3.7 million barrels last week, with gasoline and distillate inventories also down by 4.2 million barrels and 3.6 million barrels, respectively. Furthermore, there were continued signs of strength in Asian demand. As a result, WTI prices held above the $80/barrel mark, while Brent hovered near $85.

Investors will keep a close eye on the upcoming weekly initial jobless claims data, with Bloomberg consensus expecting a print of 200k. Any rise towards 250k could heighten concerns over the job market and economic growth. Meanwhile, the highly anticipated non-farm payrolls report. The FX markets will be open despite US equity markets being closed for Easter, making the dollar's reaction to the report a key factor. According to Bloomberg's survey of economists, non-farm payrolls are expected to grow solidly at 235K in March, lower than February's 311K, and the unemployment rate is projected to remain unchanged at 3.6%. Consensus estimates for average earnings are 0.3% M/M, up from February's 0.2%, and 4.3% Y/Y in March, down from February's 4.6%.

As investors navigate the current economic uncertainty, the jobs data and commodity prices will continue to be closely monitored. Any surprises in these areas could lead to increased market volatility in the coming weeks.