Market Drivers – US Session – Friday 22 April

Total assets on the Fed’s weekly balance sheet as of April 20, released this afternoon, declined to $8.955 trillion, roughly the same as on March 16 and below the levels of March 23 and April 13. Beyond the week-to-week ups and downs, caused by the peculiarities of Mortgage Backed Securities (MBS), which we’ll get to in a moment, the balance sheet has flattened out. Balance sheet growth has ended. QE has ended. That part of the marvelous show is over.

Economic Data
The number of total active drilling rigs in the United States rose by 2 this week, after an increase of 4 rigs in the week prior, according to new data from published on Friday.

The total rig count increased to 695 this week—257 rigs higher than the rig count this time in 2021 and the highest count since April 2020. Drilling has picked up substantially since the Russia invasion, adding 45 rigs in the last eight weeks.

Oil rigs in the United States rose this week by 1 rig to 549, while gas rigs rose by 1 to 144. Miscellaneous rigs stayed the same at 2. The rig count in the Permian Basin stayed the same this week at 334, while rigs in the Eagle Ford rose by only 1.

Manufacturing PMI was a little stronger than expected, but Services PMI was much weaker than expected. The Dollar Index (DXY) did not react to the latest PMI data release.

IHS Markit’s headline Manufacturing PMI rose to 59.7 in April from 58.8 in March, above expectations for a slight decline to 58.2, according to a flash estimate released on Friday.

Conversely, the headline Services PMI, fell to 54.7 from 58.0, much worse than expectations for it to remain unchanged at 58.0 in April. That dragged the Composite PMI down to 55.1 in April from 57.7 in March, larger than the expected drop to 57.0.

Other Developments

Cleveland Fed President and FOMC member Lorreta Mester, speaking in an interview on CNBC, said on Friday that the Fed wants to see tighter financial conditions, though not all at once. “We are in a recalibration phase for monetary policy,” she said, adding that the Fed’s goal is to bring inflation under control, but also to sustain the expansion and maintain healthy labour markets.

French voters head to the polls on Sunday to cast their ballots in the final round of a close presidential race between incumbent President Emmanuel Macron and rival Marine Le Pen.

Centrist Macron was seen taking the lead against his far-right opponent in the final day of campaigning, taking a 57.5% lead over Le Pen’s 42.5%. But the outcome is still unclear, according to top banks, which have predicted potential market upset if Le Pen happens to win. Wall Street also forecasts market upset if far-right candidate Marine Le Pen proves victorious.

US Treasury Secretary Janet Yellen said on Friday that it is worth considering steps to lower US tariffs on Chinese goods in order to ease inflation, and that there would be some “desirable effects” of lowering tariffs.

Speaking in a CNBC interview earlier in the day, Yellen stated on Friday that the US economy is being very resilient in the face of a set of shocks and noted that inflation may have peaked, but that Russia’s invasion of Ukraine will prolong inflationary pressures.

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US Flash Markit Manufacturing PMI rises to 59.7 in April versus 58.2 expected