Daily Brief

Goldilocks and the three bulls

5 minute read

May labor report had something for everyone

The latest U.S nonfarm payroll report, released on Friday, saw a further 390K jobs added throughout May, beating estimates of 325k. That estimated figure had quickly been revised down by the number-crunchers after the previous days ADP (private payrolls) recorded only 128k new job gains, against an estimate of around 200K. Unemployment remained steady at 3.6%, having been expected to drop a touch to 3.5%. There was also a slight miss on those key average hourly earnings, which remained at 0.3%, having been forecast to accelerate by 0.4% throughout the month. All a bit of a mix-bag then.

Leisure and hospitality lead the gains

Looking a little more under the hood, some of the biggest gains were amongst the leisure and hospitality sector, with more than 80k new positions added throughout the month, with businesses likely responding to the improving springtime weather for most of the U.S. Furthermore, there were over 75K new roles filled amongst the professional and business services sector. On the downside, the retail sector saw a surprising drop of 61K, despite the total number of roles still exceeding the pre-COVID total.

Soft landing for the Fed?

The big takeaway from the report is probably one of relief from both the Fed and markets, as it points to a U.S economy that might just manage the soft landing that we all crave. For the labor market, there remains consistent and healthy job creation, against a backdrop of decelerating wage growth, without the wheels completely falling off the bus in the meantime. So, whilst there has been recent (and perhaps expected) weakness in some parts of the economy such as the housing market, as well as notably softer GDP growth, the jobs machine keeps rolling along to help mitigate fears of an imminent recession.

What about that dollar then?

Well, last week was a strange one. As well as markets having to navigate the choppy, holiday-thinned waters, outside of the labor market there has been a distinct lack of clarity amongst U.S data, with a much stronger than expected ISM Manufacturing report (at 56.1 vs 54.5 exp) offset by a slowdown in ISM Services (55.9 vs 56.4 exp). This all helped to ensure that dollar index finished the week roughly 100 pips above the lows, but still remaining under the 102.00 region. This week’s inflation data (out Friday) might just give markets further evidence of that soft-landing narrative, given that May’s report is expected to highlight a slight cooling in inflation, which could also further impact the dollar.

Over to you, ECB

This week’s ECB meeting looks like the pick of the bunch for us. With inflation surging in the region, there has been a growing call amongst key ECB members to hike rates by 50bps at their meeting next month (July). So, whilst no change in rates is expected by the ECB this week, we may see a strong indication from Christine Lagarde that the ECB are seriously considering 50bps as an option. Thursday should be interesting. In the meantime, this distinct change of direction from the ECB has understandably helped to boost the previously flagging single currency, with EUR/USD moving up to nearly 1.0800 at the beginning of the week. GBP/EUR has been impacted too, slipping back toward 1.1650, having been over 1.1900 at the beginning of the month.

Confidence vote for Johnson looming?

Whilst this week may be quiet in the UK on the data front, there is growing speculation that rebel Tory MPs may have reached the key threshold needed to trigger a potential vote of no confidence in the prime minister – perhaps even at some point this week. The 1922 committee (of Tory MPs) would need to receive a minimum of 54 letters to trigger the vote, which could impact the short-term profile of sterling. GBP/USD has been trading between 1.2500 and 1.2600 for the most part of late.

25bps from the RBA tomorrow?

The RBA are expected to raise Australian interest rates by 25bps overnight, with some calling for a much bigger move from the RBA. Inflation in Australia is increasing, but at 5.1%, is running well below many developed countries, adding to the wider perception that the RBA may not be tempted to raise rates by that bigger margin just yet. Ahead of the RBA, AUD/USD briefly marked a new cycle high of 0.7285, before consolidating at the end of the week.

What else is happening today?


Not too much to be honest, with a pretty light data agenda to start us off for the week. Other than the RBA (see above), a slew of z-list Japanese data is also out overnight.


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