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The ECB delivered the widely anticipated first 25bp rate cut but kept its forward-looking guidance vague. Lagarde noted there was a 'strong likelihood' the ECB would dial back the restrictiveness of their monetary policy going forward but was not ready to pre-commit or even discuss the possible timing of the next cut. The updated economic projections underscored the cautious tone as both headline and core inflation forecasts were revised higher through 2024-2025. On Friday morning, after the meeting Thursday, several GC members including Nagel, Muller and Kazaks echoed the need to move forward gradually and depending on the incoming data. Markets were ultimately little affected by the meeting, and the next rate cut is still largely priced in by October. We still like our call of ECB cutting rates the next time only in December, read more from our ECB Review - Cutting and keeping, 6 June.

Signs of recovering European manufacturing cycle have helped calm perceived downside risks related to restrictive monetary policy stance. This week's PMI data showed a particularly sharp improvement in Swedish manufacturers' order-inventory balances. In contrast to the general trend seen over the past couple of years, US manufacturing data from the ISM was relatively less optimistic and JOLTs job openings pointed towards further cooling in labour demand.

Besides stronger export demand, improving real purchasing power is expected to lift consumption towards summer (and maintain inflation sticky in the process). Lagarde saw growth risks better balanced going forward, which rhymes well with our updated economic projections in the latest Nordic Outlook - Warmer than expected, 4 June. We revised our 2024 growth forecasts slightly higher across the euro area, the US and China. Forecasts for the Nordic economies remained little changed, with Sweden and Denmark still seeing stronger growth already this year while Finland lags behind.

Next week's main event will be the FOMC meeting on Wednesday where we, broad consensus and markets expect no monetary policy changes. The median rate projection on the updated 'dot plot' is likely to shift higher, signalling only two rate cuts this year (instead of three). That said, Powell is likely to still signal bias towards cutting rates going forward and push back on any questions regarding the possibility of further hikes. In the afternoon ahead of the meeting, US May CPI is also due for release. We forecast headline CPI at +0.19% m/m SA (Cons. +0.2%, Apr. +0.31%) and core CPI at +0.25% m/m SA (Cons. +0.3%, Apr. +0.29%). Read more from our Fed preview - No urgency, 7 June.

We expect little to no market reaction to the European Parliament elections this weekend, despite its status as a significant political event. Historical data suggests that these elections typically have a minimal effect on markets, and we anticipate a similar scenario this time, find more details from our earlier preview, Research euro area - European Parliament election will not move markets, 14 May.

Bank of Japan will also wrap up its monetary policy meeting next Friday. We expect no rate changes, but we do expect the BoJ to signal tapering of its bond purchases, which would be a natural next step after BoJ exited its yield curve control policy in March.

Full Report in PDF.

Non-farm employment surged by 272k in May, well ahead of the consensus forecast calling for a more moderate gain of 185k. Job gains in the two prior months were revised slightly lower, subtracting a combined 15k from the previously reported figures.

Private payrolls rose 229k, with most of the gains concentrated in health care & social assistance (+83.5k), government (+43k), leisure & hospitality (+42k), and professional & business services (33k).

In the household survey, civilian employment (-408k) plummeted by more than the labor force (-250k), pushing the unemployment rate higher by 0.1 percentage points to 4.0% – a 28-month high. Meanwhile, the labor force participation rate dipped by 0.2 percentage points to 62.5%.

Average hourly earnings (AHE) were up 0.4%% month-on-month (m/m) – two-tenths stronger than April's gain. On a twelve-month basis, AHE ticked up to 4.1% (from 4.0% in April), while the three-month annualized rate jumped by more than a percentage point and also sits at 4.1%.

Key Implications

Payroll growth defied expectations in May, coming in well above the consensus forecast. On a trend basis, job gains have averaged a still strong 249k over the past three-months. However, this pace of job growth is unlikely to be sustained indefinitely. By most other metrics, the labor market is already showing clear signs of cooling. Job openings have narrowed to a three-year low, the unemployment rate now sits at a 28-month high, and both the hire and quit rates are now holding steady below pre-pandemic levels after having trended lower over the past year.

The uptick in average hourly earnings will be something closely watched by Fed officials. Still elevated wage pressures are helping to sustain strong gains in service spending and are working against the Federal Reserve's efforts to bring down inflation across the service sector. For that reason, we think it's unlikely that the FOMC will be ready to start cutting rates before December – a view supported by current market pricing.

The Canadian labour market geared down from its April hiring surge, adding a modest 27k new positions in May. The gain was entirely in part-time jobs (+62k), while full-time employment declined (-36k).

The unemployment rate continued its upward trend in May. The unemployment rate rose one tenth from April to 6.2% in May, as 54.5k labour market entrants exceeded the number of people who found jobs. Related unemployment indicators also paint a picture of increased challenges finding work. For example, long-term unemployment (>27 weeks) has risen from 13.2% last year, to 18.2% in May.

The service sector saw most of the hiring. The biggest increases in jobs were business, building and other support services (+19k; +2.7%), finance, insurance, real estate, rental and leasing (+29k; +2.0%), health care and social assistance (+30k; +1.1%) and accommodation and food services (+13k; +1.1%). Meanwhile, construction lost jobs (-30k) as did transportation and warehousing.

Lastly, total hours were flat, and are up 1.6% over the past year. That is despite employment rising 2% over the same period.  Wage growth picked up to 5.1% year-on-year in May from 4.7% in April, largely due to base effects which are expected to peter out after June.

Key Implications

The Canadian labour market geared down in May and shows many signs of cooler job market conditions. Hiring continues, but Canada's population has grown 3.4% over the past year and 2% growth in employment is not strong enough to keep the unemployment rate from rising. And it's not just population growth, signs of softness are widespread: people are unemployed longer, job gains over the past year have been skewed towards the public sector, and the more cyclical goods sector has lost jobs over the past year.

Typically the jobs data is the week's marquee star, but the Bank of Canada's interest rate cut on Wednesday (see analysis) stole the show. There is plenty in May's jobs data that supports the case for lower interest rates. However, the economy has cooled, but it has not fallen off a cliff. We expect that will lead to a gradual pace of interest rate reductions this year, with the BoC likely to cut at every other meeting. We expect a further 50 basis points in reductions in the policy rate by the end of the year easing this year.

Daily Pivots: (S1) 1.0867; (P) 1.0884; (R1) 1.0907; More…

EUR/USD dips notably in early US session but stays above 1.0788 support. Intraday bias remains neutral first. Considering bearish divergence condition in 4H MACD, firm break of 1.0788 will argue that rebound from 1.0601 has completed and turn bias to the downside for this low. Nevertheless, break of 10915 will resume the rally to 1.0980 resistance instead.

In the bigger picture, price actions from 1.1274 are viewed as a corrective pattern. Fall from 1.1138 is seen as the third leg and could have completed. Firm break of 1.1138 will argue that larger up trend from 0.9534 (2022 low) is ready to resume through 1.1274 high. On the downside, break of 1.0788 support will extend the corrective pattern instead.

Daily Pivots: (S1) 1.2766; (P) 1.2788; (R1) 1.2812; More…..

GBP/USD dips notably in early US session but stays above 1.2693 support. Intraday bias remains neutral first. Considering bearish divergence condition in 4H MACD, firm break of 1.2693 will turn bias back to the downside for 55 D EMA (now at 1.2646) and possibly below. Nevertheless, break of 1.2816 will resume the rise from 1.2298 to 1.2892 resistance.

In the bigger picture, price actions from 1.3141 medium term top are seen as a corrective pattern. Fall from 1.2892 is seen as the third leg which might have completed already. Break of 1.2892 resistance will argue that larger up trend from 1.0351(2022 low) is ready to resume through 1.3141. Meanwhile, break of 1.2445 support will extend the corrective pattern with another decline instead.

Daily Pivots: (S1) 155.19; (P) 155.81; (R1) 156.26; More….

USD/JPY rebounds notably in early US session but stays below 157.70 resistance. Intraday bias remains neutral first. On the upside, break of 157.70 will resume the whole rise from 151.86 and target 160.20 high. Nevertheless, break of 154.53 will turn bias to the downside for 151.86 support and possibly below, as the third leg of the corrective pattern from 160.20.

In the bigger picture, a medium term top might be formed at 160.20. As long as 55 W EMA (now at 147.77) holds, fall from 160.20 is seen as correcting the rise from 140.25 only. However, sustained break of 55 W EMA will argue that larger correction is possibly underway, and target 146.47 support next.

Daily Pivots: (S1) 0.8874; (P) 0.8911; (R1) 0.8930; More….

USD/CHF recovers after another take on 0.8883 fibonacci level but stays below 0.8987 support turned resistance. Intraday bias stays neutral first. Strong rebound from current level, followed by firm break of 0.8987 support turned resistance, will suggest that correction from 0.9223 has completed, and retain near term bullishness. However, sustained break of 0.8883 fibonacci level will carry larger bearish implications and bring deeper decline.

In the bigger picture, price actions from 0.8332 medium term bottom are tentatively seen as developing into a corrective pattern to the down trend from 1.0146 (2022 high). Rejection by 0.9243 resistance, followed by sustained break of 38.2% retracement of 0.8332 to 0.9223 at 0.8883 will strengthen this case, and maintain medium term bearishness. However, decisive break of 0.9243 will argue that the trend has already reversed and turn medium term outlook bullish for 1.0146.

Dollar rebounds broadly in early US session following stronger-than-expected employment data. Despite a slight uptick in unemployment rate, robust headline job growth and wage increases highlighted the US job market's continued tightness. This suggests that Fed should remain cautious about premature policy easing.

In reaction to the data, US futures tumbled significantly, pointing to a lower open. A key question now is how much this sentiment will impact the resilient tech sector, with NASDAQ having just reached another record high this week. Additionally, 10-year Treasury yield staged a strong rebound, climbing back above 4.4% mark.

In the broadly currency markets, Canadian Dollar remains the worst performer for the week, despite slightly better-than-expected Canadian job data. Australian Dollar is the second worst and may weaken further before the weekly close due to risk-off sentiment. Euro is currently the third worst. Conversely, Swiss Franc and Yen are the best performers, though their positions could be overtaken by the surging Dollar.

In Europe, at the time of writing, FTSE is down -0.70%. DAX is down -0.86%. CAC is down -0.79%. UK 10-year yield is up 0.0726 at 4.251. Germany 10-year yield is up 0.077 at 2.630. Earlier in Asian, Nikkei fell -0.05%. Hong Kong HSI fell -0.59%> China Shanghai SSE rose 0.08%. Singapore Strait Times closed flat. Japan 10-year JGB yield rose 0.0069 to 0.973.

US NFP grows 272k, average hourly earnings rises 0.4% mom

US non-farm payroll employment grew 272k in May, well above expectation of 180k. That's also higher than the average monthly gain of 232k over the prior 12 months.

Unemployment rate ticked up from 3.9% to 4.0%, above expectation of 3.9%. Labor force participation rate fell from 62.7% to 62.5%.

Average hourly earnings rose 0.4% mom, above expectation of 0.3% mom. Over the 12 months period, average hourly earnings rose 4.1% yoy.

Canada employment grows 26.7, unemployment rate up to 6.2%

Canada's employment grew 26.7k in May slightly above expectation of 24.8k. Part-time employment rose 62k while full-time jobs fell -36k.

Unemployment rate ticked up from 6.1% to 6.2%, matched expectations. Average hourly wages increased 5.1% yoy, up from April's 4.7% yoy.

ECB's Nagel: Rate cuts not on autopilot

ECB Governing Council member Joachim Nagel stated today that the decision to cut interest rates yesterday was "logical" given the tendency for inflation to decrease. However, he emphasized that inflation remains "stubborn," particularly in the services sector.

Nagel highlighted that negotiated wages are expected to rise sharply this year and continue strong growth thereafter. He noted, "We on the ECB Governing Council are not driving on autopilot when it comes to interest rate cuts."

Council member Olli Rehn stated that inflation will continue to decline and interest rate cuts will support economic recovery. Rehn suggested that the possible scale of interest rate cuts over the next few years could range from 1 to 2 percentage points, assuming no new economic shocks occur.

Council member Gediminas Šimkus indicated that more than one rate cut might be necessary this year. He acknowledged that while data shows clear signs of disinflation, the path ahead will be challenging. Vice President Luis de Guindos added that inflation is expected to be around 2% next year but also noted "huge uncertainty in the economy."

China's exports rises 7.6% yoy in May, trade surplus exceeds expectations

In May, China's exports rose by 7.6% yoy, surpassing the expectation of 6.0% yoy growth. Notably, exports to US increased by 4.8% yoy, marking the highest growth in three months. Exports to ASEAN countries saw a significant jump of 25% yoy, while exports to the EU declined by -0.7% yoy.

On the import side, growth was more subdued, with imports rising by only 1.8% yoy, falling short of the expected 4.2% yoy increase.

China's trade balance for May reported a surplus of USD 82.6B, well above the anticipated USD 72.2B.

USD/CHF Mid-Day Outlook

Daily Pivots: (S1) 0.8874; (P) 0.8911; (R1) 0.8930; More….

USD/CHF recovers after another take on 0.8883 fibonacci level but stays below 0.8987 support turned resistance. Intraday bias stays neutral first. Strong rebound from current level, followed by firm break of 0.8987 support turned resistance, will suggest that correction from 0.9223 has completed, and retain near term bullishness. However, sustained break of 0.8883 fibonacci level will carry larger bearish implications and bring deeper decline.

In the bigger picture, price actions from 0.8332 medium term bottom are tentatively seen as developing into a corrective pattern to the down trend from 1.0146 (2022 high). Rejection by 0.9243 resistance, followed by sustained break of 38.2% retracement of 0.8332 to 0.9223 at 0.8883 will strengthen this case, and maintain medium term bearishness. However, decisive break of 0.9243 will argue that the trend has already reversed and turn medium term outlook bullish for 1.0146.

Economic Indicators Update

Canada's employment grew 26.7k in May slightly above expectation of 24.8k. Part-time employment rose 62k while full-time jobs fell -36k.

Unemployment rate ticked up from 6.1% to 6.2%, matched expectations. Average hourly wages increased 5.1% yoy, up from April's 4.7% yoy.

Full Canada employment release here.

US non-farm payroll employment grew 272k in May, well above expectation of 180k. That's also higher than the average monthly gain of 232k over the prior 12 months.

Unemployment rate ticked up from 3.9% to 4.0%, above expectation of 3.9%. Labor force participation rate fell from 62.7% to 62.5%.

Average hourly earnings rose 0.4% mom, above expectation of 0.3% mom. Over the 12 months period, average hourly earnings rose 4.1% yoy.

Full US NFP release here.