Previous Day's Market Highlights
Friday’s disappointing US labour market report has done little to hold back the wave of pessimism currently sweeping financial markets. While a moderation in jobs growth, largely due to supply constraints rather than a lack of demand, had been expected, few were expecting such a weak release. Data showed headline nonfarm payrolls increasing by just 75,000 in May, the smallest gain since February, and well below market expectations of a 185,000 jobs gain. Revisions to both April’s and March’s data also gave little cause for optimism, with a net downward revision of 75,000. Average hourly earnings also disappointed, with an increase of 3.1% on a year-on-year basis being 0.1% below forecasts. Weaker earnings give markets a conundrum - with labour supply constraints typically resulting in upward wage pressures, a scenario which doesn’t appear to be playing out at present. A mild positive could be found in the unemployment rate remaining at 3.6%, a 50-year low, though markets largely shrugged off this data point. In reaction to the disappointing report, the dollar fell 0.5% against a basket of peers, tumbling to its lowest levels since mid-March. Markets have also further increased bets on the Federal Reserve cutting rates - with a rate cut as soon as July now an 87% chance in light of the seemingly moderating US labour market.
Meanwhile, Canadian labour market data showed continued divergence from its southern neighbour, painting an upbeat picture of the jobs market. The unemployment rate fell for a 3rd consecutive month, reaching 5.4% - the lowest level since comparable records began in 1976. Employment in Canada also increased, for a second consecutive month, with 27,700 jobs added to the Canadian economy in May. In further contrast to the US, the tight labour market conditions in Canada are resulting in upward pressure on wages, with earnings increasing at 2.6% on a year-on-year basis in May. The loonie reacted positively to the upbeat data, rallying 0.75% against the dollar, reaching its best levels since early-March.
In Europe, both the pound and euro traded in a quiet manner with no major data releases to stimulate volatility. Sterling gained 0.3% against the dollar over the course of the day, hitting a 3-week high, purely as a result of a broadly softer greenback. Against the euro, sterling fell, losing 0.3% to close at the lowest levels since mid-January as political uncertainties continued to exert downward pressure. The single currency also benefitted from a weaker dollar, gaining 0.5% to reach the highest levels since 22nd March.
Away from FX, equity markets recorded solid gains. In Europe, the pan-continental Stoxx 600 added 0.9%, with technology stocks leading the way. Meanwhile, in the US, bad news was good news for equity markets - with disappointing labour market data and increased odds of a Fed rate cut boosting equity markets. The benchmark S&P 500 added 1.05%, while the Dow posted a weekly gain of 4.7%, the biggest since November. Finally, oil prices also firmed after OPEC signalled they were close to agreeing further production cuts. Both Brent and WTI added more than 2.5% over the course of the day.
|Currency Pairing||08:00 Today||Vs 08:00 Yesterday||Four-Week High||Four-Week Low||% Change|
Today's Market Highlights
A fresh trading week begins with a number of second-tier economic releases in focus, though the bigger picture themes of trade tensions and UK political uncertainties will remain front-and-centre. From the UK, markets will likely look over this morning’s GDP figures for April for a guide to the UK’s economic performance at the beginning of the second quarter. Expectations are for a contraction of 0.1% on a month-on-month basis, unchanged from March’s reading. Industrial and manufacturing production figures, in addition to trade balance data, may also attract some attention this morning. Of more importance however is the official start of the Conservative Party leadership contest, with candidates having until 5pm this evening to enter. Markets remain attuned to the process, and the impact that the new leader will have on the progress of Brexit. Any sterling rallies are likely to remain capped until a significant degree of uncertainty has been removed.
Elsewhere, this afternoon, markets will focus on a couple of releases from North America. From the US, April’s JOLTS job openings figures will be eyed as markets continue to react to Friday’s disappointing payrolls figure. Markets expect job openings to moderate slightly to 7.24mln. Meanwhile, from Canada, markets will eye the release of building permits figures for April, expected to increase by 0.5% on a month-on-month basis, as a gauge of the health of the housing sector.
Turning to central banking, markets are due to hear from a couple of BoE speakers throughout the day. Chief Economist Haldane, and external MPC Member Saunders are due to give addresses, with any hawkish comments having the potential to spark an upside move for the pound. Markets will not hear from any Fed speakers this week, with the pre-meeting blackout period now in force until 20th June.
Looking ahead to the remainder of the week, the most impactful data release is likely to be Wednesday’s US CPI data for May. With markets continuing to ratchet up bets on the Fed cutting rates, a softer than expected pace of price increase would likely further weigh on the dollar and increase pressure on the FOMC. Markets expect core CPI at 2.1% on a year-on-year basis, unchanged from the previous release. Other notable releases include labour market reports from the UK (Tues) and Australia (Thurs) in addition to retail sales and consumer sentiment figures from the US (both Fri). Away from data releases, it is set to be a relatively quiet week in central banking, with only the Swiss National Bank (SNB) due to announce a policy decision. Markets expect rates to be kept on hold, with a rate hike this cycle having been made even more unlikely after the ECB’s dovish tone last week. Negative rates look set to become the new normal in Switzerland, with a further loosening of policy further down the line not out of the question.
Today's Economic Calendar
|9:30am||GBP||GDP (m/m - Apr)||-0.1%||-0.1%|
|1:30pm||CAD||Building Permits (m/m - Apr)||0.5%||2.1%|
|3:00pm||USD||JOLTS Job Openings (Apr)||7.24mln||7.488mln|