Markets
European markets remained very bullish in the wake of yesterday’s ECB policy meeting. With monetary policy fully set up and important steps in European fiscal aid taken, investors now believe there’s little that stands in the way of a European – but also global – economic recovery. Additional evidence to that thinking came from the US job market report that came in a lot better than expected. May payrolls showed a net job gain of more than 2.5 million whereas markets anticipated a further decline of 7.5 million. Hiring rebounded in both the goods and services sector with significant increases in retail, business services, education & health and of course leisure & hospitality. The unemployment rate was expected to rise close to 20% but instead fell to (though a still high) 13.3% vs. 14.7% in April. April’s surge in hourly earnings (+4.7% m/m) as especially low-wage workers were being laid off temporarily, eased again in May (-1% m/m), suggesting a return of those lower-wage jobs. Markets cheered. Stocks go up >3% in Europe and open >2% higher in the US. Core bond yields continued recent upward trend and add again several basis points, additionally supported by further rising oil prices. USTs underperform following the payrolls report. The US yield curve bear steepens with yield changes varying from +1.4 bps (2-yr) to 7.3 bps (10-yr). German yields rise 4-5 basis points at the long end of the curve. The European 10y swap rate briefly touched 0%. Peripheral spreads to core narrow further after yesterday’s already aggressive move. Italy (-6 bps) and Greece (-9 bps) outperform.
EUR/USD initially headed further north in the same spirit as equities and core bond yields. The pair was closing in on the 1.14 level before having a touch of vertigo after the recent impressive rally however (eight straight trading days of gains). The couple inched lower in the run-up to the US job report and touched 1.13 shortly after the release with the dollar clawing back. EUR/USD is changing hands around 1.1318 at the time of writing, more or less unchanged vs. opening levels. USD/JPY extended gains beyond 109 to 109.60 currently amid risk-on and the unexpectedly strong labour market report. USD/JPY 109.48 is important resistance, which the pair looks to capture going into the weekend. The 76.4% fibo support at 96.62 in the trade-weighted dollar (DXY) came under pressure but holds for now. The final round of four weeks intense Brexit negotiations resulted to “no significant progress”, EU negotiator Barnier said during a press conference today, accusing the UK of backtracking on earlier commitments. However, both he and his UK counterpart Frost agreed that talks need to intensify and accelerate and think they can reach common ground by autumn. Barnier highlighted October as key. While no one mentioned the elephant in the room, the June 30 deadline, the pound clearly took comfort in both parties’ commitments. Sterling rallied against the euro from EUR/GBP 0.90 to 0.891, additionally boosted by the extremely constructive risk climate.
News Headlines
In line with the development in the US, Canada’s May employment showed an unexpected rebound of 289 600. A further loss 0.5 mln jobs was expected. The rise was mainly due to a rebound in full time employment (219 400). The jobless rate still rose slightly from 13.0 to 13.7%. The participation rate jumped from 59.8 to 61.4, but remains well below pre-crisis levels (65-66 area). The gain of the Canadian dollar was modest. USD/CAD dropped temporarily to 1.34 but soon returned to the mid 1.34 area.
According to the Norwegian Statistics office (SSB), the country’s economy will recover more quickly than expected from the corona-related downturn. Norway was quick to address the outbreak in its early stages is now rapidly opening up. Output contracted by 11.4% in the two months since the end of February but the outlook for the rest of the year looks better, SSB said. The Norwegian krona today extended its rebound (EUR/NOK 9.52 area), but this was also due to the rise in oil prices and an ongoing positive risk sentiment.
