Markets
US payrolls for April printed a stronger-than-expected 115k, easily topping the 65k consensus bar. This solid employment growth followed a strong March as well (185k vs 178k in the initial release) and resulted in the first back-to-back gains in over a year. The increase was widespread in the services sector. Trade & transport (60k) led with private education & health (46k) as the runner-up. IT and financial services were the outliers shedding jobs with the pace in the former sector having accelerated since the turn of the year (AI impact?). The manufacturing sector also forfeited some jobs. Pay growth came in slightly sub-par at 0.2% m/m and 3.6% y/y – hovering near five-year lows. The unemployment rate steadied at 4.3% while the participation rate fell to 61.8%. The labour market environment is still considered as a fragile “low hire, low fire” by the likes of Fed Hammack as of yesterday. Today’s numbers do seem to confirm Fed chair Powell’s message of a labour market that is showing “more and more signs of stability” last week after a year of near-zero job growth. A near-term rate cut in such circumstances is unnecessary, particularly given upside inflation risks posed by the Iran war. US money markets hold on to their view of a long rates status quo at least through 2026 after the labour market report. Rates trade a couple of bps lower to the tune of 4.5 bps. German rates are going nowhere. This paralysis isn’t surprising with the bigger question still unanswered: Iran’s response to the US 14-point MoU. Secretary of State Rubio said “we should be hearing something today” but it’s really anyone’s guess, both on the timing and the actual reply. Oil prices are testing the $100 barrier (Brent) for a third day straight. Stocks lose ground in Europe but gain on WS. The euro takes the lead against most peers, including the USD. EUR/USD rises to 1.1777. DXY is struggling around the 98 big figure.
Gilts rally today, strongly outperforming core peers. Yields drop almost 9 bps at the long end of the curve. With 51 of the 136 English councils already declared, Labour lost 234 seats while Reform UK secured a whopping 380, setting Starmer’s party up for a heavy defeat. The results appear less worse than forecast, though, and the PM already insisted he’s not going anywhere. Regardless of the value of such a statement, it is easing some of the concerns markets had going into the elections vs. a potential follow-up to Starmer and his/her view on fiscal policy. Sterling barely reacted to the election outcome with EUR/GBP treading water around 0.864.
News & Views
The pace of Hungarian headline inflation held steady at 0.4% M/M in April, defying expectations for an acceleration to 0.6% M/M. Prices are 2.1% higher Y/Y. That’s more than in March (1.8%) but also below consensus (2.2%). Accelerating food price inflation was partly offset by disinflation in regulated prices. Core inflation rose by 0.3% M/M and 2.2% Y/Y with core inflation excluding indirect tax effects also printing at 2.2%. Incoming data were below the Hungarian central bank’s forecasts in the March inflation report. The MNB’s measures of underlying inflation developments capturing persistent inflationary trends declined. The inflation of sticky price products was down to 4% Y/Y. Core inflation excluding processed food decreased to 3%. Further MNB analysis showed tradables (goods) inflation rising by 0.7% M/M and 1.4% Y/Y. Services inflation rose by 0.5% M/M and 4.6% Y/Y. Hungarian swap rate dropped significantly after the CPI release, falling by 15 bps (10-yr) to 19 bps (2-yr). The forint shrugged off the loss of interest rate support (and the largest ever YtD Hungarian budget deficit; 70% of the annual target; also released today) with the Hungarian currency testing the strongest levels against the euro since early 2022 at EUR/HUF 355. Ever since Fidesz lost power, Hungarian assets profited from EMU-convergence vibes.
The United Nation’s FAO Food Price Index rose for a third consecutive month, with the index hitting its highest level since February 2023. Food prices rose by 2% Y/Y in April. Details showed a mixed picture. Especially vegetable oils are responsible (+5.9% M/M; index hit highest since July 2022) though meat (+1.2% M/M with index hitting record high) and cereal prices (+0.8% M/M) increased as well. The continued increase in vegetable oil was driven by higher prices of palm, soy, sunflower and rapeseeds oils. Higher demand from the biofuel sector, higher crude prices and fears over lower Asian production in coming months all play their part. Dairy prices fell on a monthly basis (-1.1% M/M) are 21.1% lower than a year ago. Finally, ample global supplies drove sugar prices 4.7% down in April and 21.2% below last year’s price level.
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