DOGE-driven layoffs set the stage for US jobs report

In focus today

In the US, the March Jobs Report finishes off an eventful week. We think nonfarm payrolls growth slowed down to just 110k (from +151k) amid federal layoffs and sharply slowing immigration. The unemployment rate could edge slightly higher to 4.2% although we think tighter labour supply growth will constrain the rate from rising significantly. Average hourly earnings growth likely remained steady at +0.3% m/m SA.

In Sweden, the flash inflation data for March is released (CET 08:00). We expect another substantial increase in food prices, which will elevate underlying inflation, CPIF excluding energy, to 3.2% year-on-year (Feb. 3.0%) according to our forecast. This is slightly higher than the Riksbank's forecast of 3.1%. The high readings complicate policy making for the Riksbank given that the weak recovery, which met another headwind by the tariffs, would justify further rate cuts, in our view.

Economic and market news

What happened yesterday

In the US, ISM services surprised to the downside for March, declining sharply to 50.8 (cons. 53) from 53.5 in February. In contrast to its PMI counterpart released earlier, which pointed to a more positive outlook, this ISM reading showed the softest expansion in the services sector since June last year. The March Challenger Report on layoff announcements showed 275k job cuts in March, a significant increase from 172k in February and the highest value since May 2020. With the government leading all sectors in job cuts, this reading to a large degree reflects the impact of the DOGE plans to eliminate positions in the federal government.

In the euro area, services PMI for March was revised up to 51.0 from 50.4 in the flash release. This is positive news since the services sector is the largest part of the economy, accounting for 74% of GDP. In isolation the final March PMI report supports the hawk camp in the ECB calling for a pause in April. Yet, declining inflation and recent tariff announcements should tip the balance towards a cut in April given downside risks to growth and inflation almost at target.

In Sweden, composite PMI has decreased to 50.6%, primarily due to a drop in the Services PMI, which fell to 49.4 from a revised 50.5 in February. This marks the first contraction of the year and the lowest level since September. All areas of the index declined, with employment - which is for 20% of the Services PMI - remaining below 50 for the eighth consecutive month. The strong performance of the Manufacturing PMI earlier this week is helping sustain the composite index level.

In Norway, housing prices rose 0.1 % m/m (SA) in March, confirming signals of a cooler market after rate cut expectations and some easing of regulation lifted prices towards the end of last year and into 2025. This is weaker than Norges Bank (NB) assumed in the latest MPR at 0.7 % m/m. However, NB has repeatedly stressed that stronger nominal housing prices is first and foremost a correction in real prices back to the 2022-level, and that credit growth remains muted and below income growth. Hence, the figures will not affect monetary policy in the coming months. 

Equities: Global equities experienced a severe downturn yesterday, likely for reasons familiar to everyone. A closer examination reveals significant outperformance by defensive sectors compared to cyclicals. While this is not entirely surprising, the fact that markets declined so heavily yet utilities and consumer staples rose was admittedly unexpected. The US markets were hit hardest, which makes a lot of sense given that US consumers are most affected by this situation. The US is also facing the largest revisions to its growth outlook following the implementation of the new US tariff regime. With both uncertainty and recession risk significantly heightened following "liberation day", it is unsurprising to see the VIX spike to a level of 30.

Whether discussing the direction for equities, cyclicals versus defensives, or the level of volatility and implied volatility, it would, in our opinion, look very different without the current political environment in the US. It is quite rare to witness a correction (a drop of more than 10%) in global equities under the current macroeconomic conditions. However, that is the reality with Trump as the US president, and one must act accordingly. In the US yesterday, the Dow was down 4.0%, the S&P 500 fell 4.8%, the Nasdaq declined 6.0%, and the Russell 2000 dropped 6.6%. Asian markets continue to trend lower this morning, and the same is true for futures in Europe and the US.

FI&FX: The dollar index DXY experienced its second biggest loss in one day since the GFC, Nasdaq slumped 6.0% (third biggest one-day loss since GFC) while the broader S&P 500 was down 4.8%. Nikkei -3.6% and equity futures are in red. Treasuries rallied massively lead by the short end of the curve as 2Y is down 30bp since Tuesday's peak. Bullish steepening characterized fixed income across regions. EUR/USD jumped three figures to trade close to 1.11 this morning, USD/JPY dropped from 150 to 146. CHF alongside JPY are the two natural outperformers. SEK initially had a strong day, although gains were erased in the US session. NOK sold off throughout the day as the oil price dropped below USD 70. A sharp selloff of the zloty on quite a remarkable dovish shift from the NBP.