Market movers today
- Today’s US non-farm payrolls will be key for markets in the short term. Consensus is 674k up from last month’s disappointing 266k, (see more below).
- Euro retail sales for April are also released. After a big drop of more than 5% m/m in Germany released on Wednesday, we will likely see a soft Euro print today as well.
The 60 second overview
Non-farm payrolls: With a Fed that is clearly ’employment-based’ in deciding when to start tapering asset purchases, today’s non-farm payrolls will be key for markets. It will be the last piece of significant information for the Fed ahead of the FOMC meeting in less than two weeks. Consensus is looking for the job report to show employment growth of 661,000 in May. In reality, it is very hard to say, as two forces are pulling in different directions. On the one hand, businesses would like to hire many employees and job openings are at a very high level. On the other hand, the temporarily higher unemployment benefits reduce the incentive to work (expire in early September on a federal level). We think the market reaction will be fairly muted if non-farm payrolls are in the 500,000-1,000,000 range and then we are probably stuck with low volatility in markets a while longer (ADP showed an increase of nearly 1 million but is not considered a very strong predictor for non-farm payrolls). We are particularly interested in learning whether employment in “leisure and hospitality” continued rising at a lot faster pace than usually at this time of the year, as it is probably the best “re-opening” indicator.
The Fed: New York Fed President yesterday said “we’re still quite a ways off from reaching the ‘substantial further progress’ that we’re really looking for” referring to the key expression of progress the Fed has used as a criteria to start tapering. Echoing other Fed speakers lately, he added that they needed to think ahead and plan for different options.
Equities: Equities finished mixed on Thursday, with Europe pushing higher, helped by strong macro data, and US slightly lower. Leadership came from value this time, with financials one of the better sectors. Energy extending its gains and also utilities higher, which made defensives outperform cyclicals. In the US, S&P closed down -0.4%, Dow -0.1%, Nasdaq -1% and Russell 2000 -0.8%. Cautiousness seems to linger this Friday ahead of US payrolls with US futures being roughly unchanged. Asian equities are mixed this morning (China leading, South Korea and Japan lagging).
FI: Strong US economic data sent US Treasury yields higher yesterday as it pointed to a decent payrolls print today. European yields also moved modestly higher. We have Italy up for review by Fitch. Italy is on stable outlook and have a BBB-rating. We do not expect a change to the rating given the low rates, ECB QE and the financial support from EU through SURE and the recovery fund.
FX: Yesterday, EUR/USD moved below 1.22, as USD got supported by stronger-than-anticipated ADP jobs data and ISM services as well as the Fed’s decision to sell corporate bonds. Crosses like EUR/GBP, EUR/SEK and EUR/NOK continue range-trading. Overall, we still need a trigger for more significant moves in FX space.
Credit: Sentiment softened in credit yesterday where iTraxx Xover widened 3bp (to 247bp) and Main widened 1bp (to 50bp). HY bonds were unchanged and IG tightened slightly.
Nordic macro and markets
No key data in the Nordics today. More on Scandi markets below.
