Markets
One of today’s highlights, the ADP job report, surprised markets to the upside. Coming in at a stellar 978k, it beat a median estimate of 650k. Last month’s figure was revised downward from 742k to 654k but still leaves a gaping hole compared to the “official” payrolls report’s 266k. Employment growth was more or less equally divided across companies’ size. Service companies clearly profited from the ongoing reopening, adding 850 000 new jobs in May of which more than half (440 000) materialized in leisure & hospitality. Education & health took the silver medal with a 139 000 job creation. Other labour data, the weekly jobless and continuing claims were in line of expectations with the former (385 000) touching a new post-pandemic low. We looked forward to market’s reaction in case of strong data, having in mind the U-turn more and more Fed governors are making with respect to start the taper debate. Bond markets initially reacted in their well-known stoic fashion. It wasn’t until first US investors started joining that we saw some proper price action. US yields turn 3.3 bps (5-yr) over 2.5 bps (10-yr) to 2 bps (30yr) higher in the run-up to the US services ISM. German yields trade almost unchanged. The 10-yr yield (+1.1bp) support at -0.20% survives but today’s price action isn’t particularly convincing. Peripheral spreads in most cases don’t change with the exception of Greece (-2 bps).The data did however put a bottom below equity markets. Stocks slid earlier in the day after US president Biden’s plan got public to amend a ban on investments in companies linked to China’s military may lead to the addition of more. Russia added to the geopolitical tensions by saying it would eliminate the dollar from its National Wellbeing Fund so as to reduce exposure to US assets. European stocks shed about 1% only to cut losses to half after the US data. Wall Street opens in red with the Nasdaq (-1%) underperforming.
The US dollar trades stronger. That was the case already before the data release due to the fragile risk environment. The ADP report supported the greenback further. EUR/USD dipped below 1.22 to reach a current intraday low of around 1.215. USD/JPY neared 110 but it never came to an actual test. DXY (trade-weighted dollar) caps 90(.25) and is on track for a close at the highest level since mid-May. Lacking guidance from the calendar or any other news, EUR/GBP simply trailed EUR/USD. The currency pair is currently flirting with the 0.86 support zone (down from 0.862 opening area). A test by cable to again capture 1.42 failed.
News Headlines
The Food Price Index of the Food and Agriculture Organization of the UN in May rose 4.8% from April, the twelfth consecutive monthly rise. The index is now 39.7% higher compared to the same level last year and reaching the highest level since September 2011, only 7.6% below its peak value of February 2011. The sharp rise in May was mainly due to higher prices for the subcategories oils (7.8%), sugar (6.8%) and cereals (6.0%) with smaller price increases for the subcategories meat (2.2%) and dairy (1.5%). Aside from ongoing strong (cyclical) demand, adverse weather conditions in Brazil (sugar) and slow production growth in Southeast Asia for oils were mentioned as factors supporting prices.
Consumer price inflation in Turkey unexpectedly eased in May to 0.89% M/M and 16.59% Y/Y from 1.68% and 17.14% Y/Y in April. Core inflation slowed to 16.99%. At the same time, producer prices rose a sharper than expected 38.33% Y/Y (from 35.17%). The lower-than-expected CPI inflation reading didn’t help the Turkish lira. Markets apparently are not convinced on the reaction function of the CBRT. Earlier this week, the lira set record low levels against the euro and the dollar after President Erdogan repeated its call for lower interest rates. EUR/TRY currently trades at 10.57 compared to a close near 10.50 yesterday. A less positive risk sentiment today is a lira negative, too.
