Analysts at Westpac explained that the US May employment report was stronger than expected, providing a sustained boost to US equities.
Key Quotes:
“The rise in US yields was more muted and the US dollar was mixed – up against JPY but about flat versus AUD, NZD and EUR.”
“Risk premiums on southern European bonds fell again as Italy formalised the new government.”
“Today’s data highlights are Australia Apr retail sales and Q1 company profits and inventories.”
“US non-farm payrolls rose a stronger than expected 223k in May, well above 190k consensus forecast and with +15k in revisions.”
“The jobless rate fell to 3.8% from 3.9% (consensus 3.9%), matching April 2000 as the lowest level since 1969 and average hourly earnings rose a larger than expected 0.3% to be 2.7% higher than a year ago (though still below 2.8% in Jan18 and Sep17).”
“Altogether it was a solid jobs report that confirms strong momentum in the US economy for the Fed ahead of its meeting this month.”
“President Trump sparked controversy an hour before the release, breaking with strict protocols via a market moving tweet that he was, “looking forward to seeing the employment numbers at 8:30 this morning”, prompting heavy speculation that it would be a solid report, as it was.”
“Also on the US data slate, the May ISM manufacturing report beat expectations, climbing from 57.3 to 58.7, continuing to oscillate at lofty 14-year highs.”
“Given how strong the US jobs report was, the response in FX markets and bonds was a little tired (the S&P 500 closed up 1.1%).”
“The US dollar bounced on the headlines but gains faded on most pairs and in the case of outperformer the British pound, the data was barely evident as GBP/USD closed up 0.4%.”
“USD/JPY was already trending higher by the NY morning as the better mood in Europe undermined the yen’s safe haven appeal.”
“The pair was at 109.20 when President Trump’s tweet effectively broke the embargo on the jobs data, given it is well known that presidents see the data beforehand. By the time of the release, it was at 109.45, extending as high as 109.73 as the data beat expectations on each 3 key metrics – jobs growth, unemployment rate and wages growth.”
“EUR/USD was choppy, trading from 1.1617 to 1.1718 but finishing the day down only 30 pips at 1.1660.”
“AUD/USD dipped as low as 0.7515 on the US jobs data headlines but then rallied back to close the week at 0.7568, dead flat on the day and thus closing with the 0.75 handle for a 13th consecutive day. USD/CAD was dead flat despite lower oil prices and the US data.”
“NZD/USD closed Friday down about 20 pips, at 0.6983, having touched 0.6961 on the US jobs data. This meant AUD/NZD rallied from under 1.08 in Friday Sydney trade to 1.0835.”
“The US 10 year treasury yield rose from 2.86% in the Sydney afternoon to 2.90%, with only a 2 basis point yield pop to 2.92% on the data. The 2 year treasury yield rose 4-5bp to 2.47%.”
“Fed funds futures implied yields rose by 2bp (Sep 2018) to 8bp (H2 2019). Markets are priced for 2 more rate hikes this year, with a modest risk of another). Influential Fed president Williams said the funds rate might need to rise above neutral in 2019.”
“There may be plenty of doubts over the sustainability of Italy’s new government but with PM Conte being sworn in, Italian markets rallied. The 10 year bond yield dropped 10bp to 2.69%, though this is still 23bp higher than a week ago. Milan shares closed up 1.5%.”
“Spanish markets appeared completely unfazed as Spain’s centre-right PM Rajoy was replaced by Socialist Party leader Sanchez after a vote of confidence. Sanchez has stated that he will adhere to the current budget proposals and the move has avoided the risk of near term elections. Spanish shares rallied 1.8% and the 10 year rallied 6bp to 1.41%.”
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