Manufacturing activity in March expanded for the first time in 17 months as reported by ISM\u2019s Purchasing Managers\u2019 Index (PMI). Last month\u2019s 50.3 reading battered projections of 48.4 and grew strongly from February\u2019s 47.8. Unfortunately, though, the greatest segment driving the upside surprise was prices, which came in at a lofty reading of 55.8, accelerating from the previous month\u2019s 52.5. Also helping the headline figure were production, imports, exports and new orders, which scored 54.6, 53, 51.4 and 51.6. Manufacturers are indeed doing more with smaller headcounts as employment contracted, sporting a figure of 47.4. Inventories contracted while delivery times quickened on a month-over-month basis (m\/m).<\/p>\n\n\n\n Construction spending contracted in February even as building activity for residential real estate strengthened. Total construction spending decreased 0.3% m\/m, much worse than the 0.7% growth anticipated and a steeper rate of decline relative to January\u2019s 0.2% contraction, according to this morning\u2019s Commerce Department data release. Residential investments grew 0.7% m\/m, with new single-family homes increasing 1.4%, while new multifamily investments dropped 0.2% during the period. The transportation segment also helped, growing 0.7% during the period. Among the 16 non-residential categories, 15 of them sported declines, with health care, commercial and water supply weighing on results by dropping 2.2%, 1.9%, and 1.8%. The highway and street, amusement and recreation, religious, and educational areas all fell 1.5% m\/m.<\/p>\n\n\n\n Beijing also dished out stronger-than-expected manufacturing data, sparking optimism that the country\u2019s limping economy may be improving. After five months of decline, the government\u2019s manufacturing PMI exceeded the expansion\/contraction threshold of 50 with a March result of 50.8. It climbed from 49.1 in February and beat the median analyst forecast of 50.1. The benchmark\u2019s new export order category climbed to 51.3, the first time in a year that it has expanded. The export order gauge points to a likely increase in March exports, which would be the third-consecutive month of gains. On a broader level, overall orders reached 53, a 12-month high. Separately, the Caixin manufacturing PMI hit 51.1, its fifth month above the expansion\/contraction threshold. Analysts anticipated a score of 51.0. China also said non-manufacturing employment contracted to the lowest level in five months as travel volume has weakened after the end of the Chinese New Year.<\/p>\n\n\n\n Markets are selling off with all major US equity indices lower as bond yields, the dollar and oil prices soar. Investors are indeed front running the possibility of yet another hawkish pivot from the Fed. While the odds of Powell turning increasingly hawkish are low, taking profits in April seems prudent considering that stocks are already up 11% year to date. The year has just started ladies and gentlemen. The Dow Jones Industrial, Russell 2000, S&P 500 and Nasdaq Composite indices are lower by 0.7%, 0.7%, 0.3% and 0.1%. Sectoral breadth is deeply negative with 10 out of 13 sectors lower, led by real estate, healthcare and utilities; they\u2019re down 1.2%, 1.1% and 1%. Energy, communication services and technology are higher by 0.5%, 0.3% and 0.1%. Rates are soaring as the manufacturing comeback amidst loftier oil prices boosts inflation expectations, which are also delaying projections for the Fed\u2019s first rate reduction. The 2- and 10-year Treasury maturities are trading at 4.72% and 4.32%, 9 and 11 basis points (bps) higher on the session. The possibility of a firmer Fed and loftier yields are supporting the US currency, with the Dollar Index up 46 bps to 105. The greenback is up versus all major, developed market counterparts except for the yuan, which is benefiting from upbeat manufacturing data in the export dependent nation. The US dollar is gaining relative to the euro, pound sterling, franc, yen and Aussie and Canadian dollars. Crude oil is surging on bullish supply-demand dynamics. Namely, the supply side is being constrained by OPEC + concerns and continued attacks from Kyiv upon Russian refineries. The demand angle is being buoyed from better data out of Beijing, the world\u2019s largest oil importer. WTI is trading higher by 1.4%, or $1.14, to $84.20 per barrel.<\/p>\n\n\n\n While stock investors are concerned today about delayed interest rate reductions from the Fed, it\u2019s important to remember that monetary policy is much more than just the rate itself. Think about how long we\u2019ve been in a so called \u201crestrictive landscape,\u201d but when you leave the circus and enter reality, financial conditions are much looser than they were prior to the Fed\u2019s first rate cut in March 2022, pointing to an abundance of liquidity, animal spirits and inflationary pressures. When you consider funds in the reverse repo facility, the size of the Fed\u2019s balance sheet, the dovish commentary from Powell, nose-bleed fiscal spending, corporates flush with cash and homeowners sitting on 2% mortgages, the economic environment is quite buoyant, especially when you remove the uncertainty of more rate hikes. Powell is terrified of another repo crisis that would be similar to the one that occurred when they were cutting the balance sheet pre-pandemic, but he didn\u2019t seem concerned at all when they were adding $120 billion a month in 2022, even as inflation was raging. This Fed has implicitly accepted inflation at 3% to 3.5%, will not allow a traditional business cycle to play out, and is already planning ahead of the bond vigilantes by changing rules in the banking system so that financial institutions can absorb much more Treasury issuance. While valuations are expensive, the one-two punch of accommodative fiscal and monetary policies are supportive of risk assets. <\/p>\n\n\n\n![\"US](\"https:\/\/ibkrcampusdev.wpengine.com\/wp-content\/uploads\/sites\/2\/2024\/04\/Picture3.png\")
<\/figure>\n\n\n\nUS Construction Weakens<\/strong><\/h2>\n\n\n\n
![\"construction](\"https:\/\/ibkrcampusdev.wpengine.com\/wp-content\/uploads\/sites\/2\/2024\/04\/Picture2.png\")
<\/figure>\n\n\n\nChina Stokes Optimism of Economic Recovery<\/strong><\/h2>\n\n\n\n
![\"Government](\"https:\/\/ibkrcampusdev.wpengine.com\/wp-content\/uploads\/sites\/2\/2024\/04\/Picture1-1.png\")
<\/figure>\n\n\n\nMarkets Wobble on Fed Fears<\/strong><\/h2>\n\n\n\n
The Fed Gives Up on 2%<\/strong><\/h2>\n\n\n\n