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Markets Today: Prepare for the RBA, ECB and US CPI

Markets viewed strong US wage bill increases on Friday as confirming the short-term trajectory of continued Fed tightening.


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  • US Nonfarm Payrolls beats at 390k, est. 318k
  • Shares down on Friday, S&P500 -1.6%
  • USD stronger
  • USD +0.8% against JPY, back above 130
  • Fed Mester needs ‘hard evidence’ of slowing inflation to avoid 50 basis points in September
  • Week Ahead: RBA, ECB, US CPI

“Just get ready to work, work, work, work, work, work
He said haffi work, work, work, work, work, work” – Rihanna

Markets viewed strong US wage bill increases on Friday as confirming the short-term trajectory of continued Fed tightening. So the good news was bad news for risk assets with US stocks falling. The report showed a solid but slower job gain of 390,000 jobs for May, with unemployment remaining at 3.6%, with the gains being made up for by the return to participation. Hourly wage growth stable at 0.3% m/m.

The S&P500 fell 1.6% on Friday, back in negative territory for the week after solid gains on Thursday. The index ended the week down 1.2%, its 8e Weekly decline for the past 9 weeks, interrupted only by last week’s 6.6% gain. The S&P500 is now 14.7% off its January highs, having recovered 7.8% from its May 20 intraday low. Friday’s declines were led by consumer discretionary and IT, while energy bucked the trend, managing a 1.4% gain as oil prices rose. The Nasdaq was down 2.5% on Friday to be down 1.0% for the week. Tesla shares weighed on Friday, down 9.2% after Elon Musk signaled that the company may have to cut its workforce by about 10%. Asian equities outperformed over the week. The Nikkei up 3.7%, with other Asian exchanges also in the green.

Friday and weekly actions

The US 2-year yield rebounded 6 basis points on the earnings release, but ended the day just 2 basis points higher. Rate movements were larger during the week . In the US, yields were higher across the curve, with the 2yr up 18bp, the 10yr up 20bp and the belly outpacing these moves with the 5yr up 22bp. Markets are retreating on hopes of a reprieve after back-to-back 50 basis point rises at the September meeting helped pull yields lower last week. Futures markets are pricing in a 143 basis point tightening over the next three meetings, up 10 basis points from a week ago. European yields moved further than their US counterparts. The 10-year Bund was up 4bp on Friday at 1.27%, up 31bp on the week. European spreads widened, with Italian bonds up 10bp on Friday and 51bp on the week at 3.40%, its highest since 2018.

Cleveland Fed Mester Friday Comments reiterated its support for 50 basis point moves in the next two meetings. As for September, it’s a decision to go 25bp or 50bp, saying “if i don’t see compelling evidence then i could easily be a 50 bps in this meeting as well.” Mester’s comments were the last scheduled comments from federal officials ahead of the June 14-15 meeting.

As for the payrolls data, continued strong job growth, a continued recovery in participation and no further acceleration in wage growth made it a positive reading.. Together they point to a robust US labor market and contain nothing to deter the Fed in the near term. Growth in non-farm payrolls of 390,000 was stronger than the consensus of 318,000, but slightly lower than April’s gain of 428,000. The marginal slowdown from April »a good thing according to Mester, but too soon to change perspectives on politics. The household survey showed a similar gain of 321,000 jobs. The participation rate increased by a tenth to 62.3% and the unemployment rate remained stable at 3.6%, as job growth was offset by the continued return of people to the labor market as labor supply continues to recover. It is important to note that the average hourly wage increased by 0.3% m/m, against an expected increase of 0.4%. This has been weighed down by a slowdown in wage growth for supervisors, but still leaves the door ajar for a soft landing from the Fed.

In other data on Friday, the US services ISM was a little weaker than expected to 55.9 from 57.1 (consensus 56.5). It was its lowest reading since February 2021, but the 24e consecutive month in growth territory. In detail, prices paid fell 2.5 ppt from a record high in April, but businesses continued to struggle to replenish inventories, with the inventory figure slowing to 51.0 from 52.3. In Europe, April retail sales fell 1.3% m/m, their first monthly decline this year and against expectations of a 0.1% m/m rise. This could exaggerate the weakness in consumption amid a rebound in services spending. The decline was led by a 2.6% decline in food spending.

The flow of market-relevant news elsewhere has been reasonably calm. In the UK, Prime Minister Boris Johnson is reportedly expecting a vote of no confidence in his leadership this week. On Monday, Beijing will further ease restrictions, resuming public transport in most districts and allowing workers to return to offices and restaurants to resume meals there.

US Bonds Friday and Weekly

In currency markets, the US dollar was higher on Friday , up 0.3% on the DXY and up against all G10 currencies. During the week, the dollar ended a two-week streak of straight declines up 0.5%, but remains 2.7% below its recent high on June 13. The AUD was down 0.8% at 0.7202 on Friday but held onto earlier gains to be up 0.6% over the week. The dollar appreciated 0.8% against the yen on Friday and 3.0% over the week. This puts the pair back above 130 at 130.87, just below the 131.35 level hit on May 5, which was a nearly two-decade high.

FX Friday and Weekly

In commodities, oil was up on Friday , Brent gained 1.8% to $119.7. The oil changed little over the week. Iron ore (+8.6%) and copper (+3.8%) were up during the week as the easing of restrictions in China boosted demand expectations. UK markets were closed at the end of last week for the Queens Platinum Jubilee. Of note over the weekend were comments from Vitol Group, the largest independent crude trader, that the United States may allow more sanctioned oil out of Iran even without a revived nuclear deal, while Reuters reported that the United States may allow shipments of Venezuelan oil to Europe.

Goods Friday and Weekly

Coming this week

  • AU: The RBA’s June meeting is Tuesday and economists are torn between a 25, 40 or even 50bp hike . We see the RBA raising rates by 25bp to 0.60%. The RBA’s forecast for rates in May has put in place a series of 25 basis point hikes “as usual” in our view, and there is nothing in the data feed since May to tear them away from the perspectives painted at that time. That said, the risk of a bigger anticipated load from the upside cycle is clear given the upside risks to the inflation outlook and the US Fed, RBNZ and BoC all rose 50 basis points. recently.
  • New Zealand : After today’s Queen’s birthday holiday, Friday’s slew of Q1 GDP ‘partials’ and May’s electronic card transactions are the main data events.
  • CH: The Caixin Services PMI today is expected to rebound from the lows reached in April but remain in contraction territory at 46.2. The trade balance is released on Thursday and the CPI/PPI is released on Friday. Overall funding figures are expected anytime from Thursday.
  • United States: CPI weighs heavy on Friday. The base measure is estimated at 0.4% m/m, with base effects seeing the annual rate slow to 5.9% from 6.2%. Also closely watched will be alternative basic indicators such as fits and medians which have been running at 0.4-0.5 for the past three months and have shown little indication of pressures easing. Fed officials mostly go to the floor ahead of the FOMC the following week. Other data released in the week include the Trade Balance today, Mortgage Applications on Wednesday and Consumer Sentiment from the University of Michigan on Friday.
  • EZ: The ECB June meeting Thursday should see the announcement of a well-telegraphed end to asset purchases and set the stage for the first interest rate hike at the following July meeting.

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