Global core bonds traded listless going into the US payrolls report, ignoring some softer than expected, but second tier, EMU eco data. The US Note future slightly outperformed. US payrolls were a mixed bag, but we retain softer than expected earnings. Core bonds spiked higher, but didn’t really gain traction despite this week’s solid performance on the back of a cautious Fed and disappointing ISM’s. Today’s initial market reaction suggests that the upward rate momentum isn’t completely broken yet. We now look forward to comments from Fed-governors to determine the short term direction of core bonds. German yields increase by 0.3 bps (2-yr) to 1.2 bps (5-yr) at the time of writing. Changes on the US yield curve vary between -1.5 bps (5-yr) and +0.3 bps (2-yr). 10-yr yield spread changes versus Germany are close to unchanged with Greece underperforming (+9 bps).
Today, the US payrolls were also the key driver for USD trading. EUR/USD held a sideways range in the upper half of 1.19 big figure in the run-up to the payrolls release. USD/JPY hovered in the 109 area. The payrolls were a mixed bag, at best. The decline in the unemployment rate to 3.9% was an eye-catcher, but payrolls’ growth and earnings/wages were mediocre and below market expectations. The dollar lost temporary a few ticks against the euro and the yen upon the publication of the payrolls. However, the US currency showed remarkable resilience given the slightly disappointing outcome of the report. USD/JPY soon returned to the 109 area. EUR/USD even set new short-term correction lows. The rejected topside attempt after to payrolls apparently pushed more stale EUR/USD longs out of their position. US equities also declined upon the release. The subsequent decline in EUR/JPY probably also added to the downside momentum in EUR/USD. The pair currently tests the 1.1915/35 support area. Today’s price action confirms that recent improvement in USD sentiment. However, some underlying euro weakness is probably also still at work.
Today there were no new market themes to guide EUR/GBP trading. The stalemate/division within the UK Conservative Party on the Brexit strategy persists. Over the previous weeks/days markets have also given up expectations for a May BoE rate hike after a series of soft UK eco data, indicating that the soft patch in the UK economy might continue into the second quarter. There were no important eco data in the UK today. Sterling held near recent lows against the euro and the dollar. EUR/GBP currently hovers in the 0.8825/30 area. Cable returned to the 1.35 area, but part of this move was due to further USD gains this afternoon.
US payrolls printed mixed. The US economy added 164k jobs in April, below 193k consensus. However, March payrolls were upwardly revised by 30k, balancing the below-consensus headline print. The unemployment rate unexpectedly declined from 4.1% to 3.9% in April, a new cycle low, but the participation rate dropped in lockstep from 62.9% to 62.8% (vs 63% expected). Wages were the biggest drag on the labour market report. They rose by a meagre 0.1% M/M and 2.6% Y/Y, below forecasts, and the March numbers faced a downward revision.
The US handed China a lengthy list of demands on trade as part of this week’s talks, from cutting the trade imbalance by $200 bn to halting Chinese government support for advanced technologies—requests Beijing called “unfair.” (WSJ).
EMU eco data disappointed today. The final April services PMI faced an unexpected downward revision from 55 to 54.7. March retail sales rose by 0.1% M/M and 0.8% Y/Y (vs 0.5% M/M & 1.9% Y/Y consensus). The data are the latest to show weakness in Q1 2018 when bad weather and higher than usual rates of illness encouraged customers to stay at home.