Treasuries rose as a gauge of U.S. factory activity contracted by more than expected, tempering inflation concerns fueled by OPEC+’s surprise plan to cut oil production.

Policy-sensitive two-year yields reversed course after earlier climbing as much as 11 basis points. Energy shares led gains in S&P 500, with U.S. crude hitting US$80 a barrel. The Nasdaq 100 underperformed major benchmarks as Tesla Inc. sank on data showing its price cuts barely boosted deliveries.

The Institute for Supply Management’s gauge of manufacturing activity decreased to 46.3 in March, below the median estimate of 47.5 in a Bloomberg survey of economists. Readings below 50 indicate contraction. Measures of new orders and employment retreated.

“The main takeaway from this report is the job market is slowing,” said Jeffrey Roach, chief economist at LPL Financial. “A cooler job market should release some of the inflationary pressure the Fed is working hard to conquer.”

The government’s monthly employment report will be released Friday and will give a fuller picture of the job market. Swaps linked to Fed interest-rate expectations showed a quarter-point hike in May as more likely than not.

‘OPEN QUESTION’

Fed Bank of St. Louis President James Bullard told Bloomberg Television Monday that OPEC+’s decision was unexpected and an increase in oil prices could make the Fed’s job of lowering inflation more challenging. “Whether it will have a lasting impact I think is an open question,” he said.

To Paul Nolte at Murphy & Sylvest Wealth Management, the fact that the Fed has indicated it’s data dependent means two things. 

“First, every data point is important. And second, they have no real long-term plan for the economy,” Nolte added. “The lack of a plan means investors are left to guess what the Fed will do based on the latest piece of economic data. This is giving rise to wild swings in the markets.”

As the possibility of a recession looks more certain, the upcoming earnings season may be the first of several difficult quarters, according to Chris Harvey, head of equity strategy at Wells Fargo & Co.

“We have been seeing for a number of quarters, margins starting to compress, and we think this is where it comes to roost,” Harvey said on Bloomberg Television. “This is the period where if you can’t make numbers, if margins get compressed, this is where you get penalized.”

Key events this week:

• Eurozone PPI, Tuesday
• U.S. factory orders, U.S. durable goods, Tuesday
• Australia rate decision, Tuesday
• Cleveland Fed President Loretta Mester speaks, Tuesday
• Eurozone S&P Global Eurozone Services PMI, Wednesday
• U.S. trade, Wednesday
• UBS annual general meeting, Wednesday
• U.S. initial jobless claims, Thursday
• St. Louis Fed President James Bullard speaks, Thursday
• U.S. unemployment, nonfarm payrolls, Friday
• Good Friday. U.S. stock markets closed, bond markets close for part of the day

Some of the main moves in markets:

Stocks

• The S&P 500 rose 0.4 per cent as of 4 p.m. New York time
• The Nasdaq 100 fell 0.3 per cent
• The Dow Jones Industrial Average rose 1 per cent
• The MSCI World index rose 0.4 per cent

Currencies

• The Bloomberg Dollar Spot Index fell 0.4 per cent
• The euro rose 0.6 per cent to US$1.0906
• The British pound rose 0.7 per cent to US$1.2421
• The Japanese yen rose 0.3 per cent to 132.44 per dollar

Cryptocurrencies

• Bitcoin was little changed at US$28,088.66
• Ether rose 1.6 per cent to US$1,818.94

Bonds

• The yield on 10-year Treasuries declined five basis points to 3.42 per cent
• Germany’s 10-year yield declined four basis points to 2.25 per cent
• Britain’s 10-year yield declined six basis points to 3.43 per cent

Commodities

• West Texas Intermediate crude rose 6.3 per cent to US$80.46 a barrel
• Gold futures rose 0.8 per cent to US$2,002.90 an ounce