Markets
US payrolls were the focal point for global markets today. However, this didn’t prevent interest rate markets to continue their recent ‘remarkable’ flattening trend that already guided trading of late. Especially LT European yields faced the impact of persistent forces of gravity. ECB president Lagarde in a press article still labeled the European economy as ‘fragile’. However this rather soft assessment of course isn’t new. German LT yields at some point again declined 3-4 bp. After the misses in April and May, the US payrolls this time didn’t disappoint. The US economy in June created a net 850 000 jobs (vs 720 000) expected. The May figure was also upwardly revised. Wage growth accelerated to 0.3% M/M and 3.6% Y/Y. However, the data again contained some ‘statistical noise’ as the jobless rate, which is derived from a different source, at the same rose from 5.8% to 5.9%. The participation rate stabilized at 61.6%. We assess the report as solid. The (interest rate) market again gave more weight to the (perceived) soft elements (rise in unemployment rate). Investors apparently see it as potentially easing the pressure on the Fed to accelerate their preparations for policy normalization. US yields tried a brief attempt to go higher, but the move almost immediately hit a roadblock. US yields currently decline modestly with the belly of the curve outperforming. (2-y -1.2 bp, 5-j -2.0 bp), but markets are still looking for direction. Some investor caution ahead of the long weekend (4th of July Holiday) might also be in play. Even so, we still label the market reaction as ‘remarkably’ soft. German/European yields were hardly affected by the developments in the US. The German curve maintained its bull flattening with yields declining between 1 bp (2-y) and 3 bp (30-y). Daily spread changes on intra-EMU bond markets are negligeable. On other markets, (US) equities again feel comfortable with the mixed message from the payrolls data. ‘Good but not too good’ is the perfect context for US equities to continue their ‘by default’ uptrend with the S&P and the Nasdaq opening at all time record levels. Oil (Brent $75.50) is still holding a wait-and-see pattern as OEPC+ fails to decide on a supply increase.
On the FX market, USD bulls this morning anticipated strong payrolls. EUR/USD briefly dropped below the 1.1850/37 support area. However, the absence of additional interest rate support post payrolls also blocked further USD gains. As is the case on interest rate markets, the dollar is also still in doubt which way to go. EUR/USD currently again trades in the 1.1840 area. DXY eased from an intraday top near 92.70 to currently return to the 92.50 area. USD/JPY already failed to join the broader USD rally in the run-up to the payrolls and currently returned to the 111.30 area. Sterling was again little affected by the broader market moves. EUR/GBP held an extremely tight sideways trading range near the 0.86 pivot.
News Headlines
Having just taken over the EU presidency from Portugal, Slovenian PM Jansa announced he will host an EU summit on October 6 to discuss relations with China. It isn’t clear whether the Chinese PM Xi Jingping would be invited as well. At the extraordinary summit, Jansa also aims to reinvigorate ties with the six Balkan countries, including Serbia, Bosnia and Albania, that hope to join the EU one day.
The US trade deficit grew to the second highest on record in May, data from the Commerce Department showed today. Exports rose 0.6% ($206bn) while imports advanced 1.3% ($277.3bn), leaving a trade hole of more than $71bn. On the export side, consumer goods rose sharply (5.8% m/m), followed by food & beverage (2.2%). The US imported a lot of industrial supplies. Imported oil barrels surged from -4.9% to 6.6% in May.
