Market movers today
We face an important week in terms of the economic data calendar. Not least, Thursday will bring a key session with the ECB meeting, the UK general election and James Comey due to testify to the senate.
In the US, the final figures for PMI services for May and core capital goods orders for April are due out today. Services PMI increased to 54.0 in May, according to the preliminary numbers, whereas core capital goods orders were flat in April. This matches our view that progress is still being made in the services sector, but the manufacturing sector may be taking a breather for now. Today also brings ISM non-manufacturing for May, which has reached very high levels recently and may have run a bit ahead of itself.
In the UK, the PMI services index for May are due out today, which we estimate fell to 54.3 from 55.8. Focus will otherwise be on the polls as we approach Election Day on Thursday.
There are no significant market movers in Scandinavia today. The Danish and Norwegian markets are closed for Whit Monday today and that the Swedish market has half a day ahead of National day tomorrow.
Selected market news
In the US, Friday’s nonfarm payrolls report did not live up to market expectations or even our own below-consensus estimates. With a disappointing headline print of 138,000 and negative revisions, it sent 3M average job growth to just 121,000 – the lowest level since 2012. The unemployment rate did drop 0.1pp but it was driven by a shrinking labour force. Irrespectively, at 2.5% y/y, wage growth seems to have lost momentum in recent months despite the lower unemployment rate.
For the Fed, subdued wage growth, low inflation and falling inflation expectations should be a concern amid weaker real data recently. However, while most of the latest FOMC speeches acknowledges this, they still indicate a forthcoming summer hike, which is probably why markets are still pricing in close to a 100% probability of a hike in June or July despite the disappointing non-farm payrolls report. Meanwhile, on release the USD index (i.e. DXY) fell to the lowest level since before the US presidential election. We think it is too early to position for a sustainable move higher in EUR/USD.
In the Middle East, Saudia Arabia, Bahrain, the UAE and Egypt have formed an alliance to block ties with Qatar. The alliance blames Qatar for supporting ‘terrorist groups aimed to destabilize the region’. The oil price has risen somewhat on the increased tension.
Danmarks Nationalbank (DN) FX reserve and central bank balance sheet numbers for May were broadly unchanged to those from April. Hence, DN did not need to intervene ahead of the second round of the French election as EUR/DKK traded close to 7.44 for most of the month. The next focus for the DKK market will be this week’s meeting of the ECB, where the market will look for changes to the ECB’s forward guidance (not our main scenario, see Fixed Income Markets on page 2). We forecast EUR/DKK at 7.4400 in 3-12M and for DN to keep its key policy rate unchanged at -0.65% on 12M.
