Markets
Subsequent waves of investor uncertainty on the health of smaller/regional US banks this week unsettled the market dynamics, often overshadowing the impact of key economic data releases or even high profile central bank policy decisions, even from the likes of the Fed and the ECB. Another blip during the US session yesterday triggered a new safe haven run on core bonds. German/EMU yields closed at intraday lows while US yields rebounded later as panic subside again, laying the groundwork for a comeback in EMU yields this morning. First ECB speakers after yesterday’s ECB policy meeting (Villeroy, Simkus, Muller) joined Lagarde’s narrative that even as the ECB slowed the pace of rate hikes from 50 to 25 bps, additional steps should be expected at upcoming meetings. German yields rebound 7-8 bps this morning, with the focus shifting to the US April payrolls. The report showed little signs of a cooling in the US labour market. The economy in April added 253k jobs (vs 185k expected), admittedly with a cumulative 2-month downward revision of 149K. However other details of the report were also strong. AHE jumped 0.5% M/M (to 4.4%) vs 0.3% expected. The unemployment rate (based on the household data) declined from 3.5% to 3.4% (3.6% expected). The participation rate stabilized at 62.6% as employment according to this survey rose modestly combined with a small decline in the labour force. At least for now, there is no additional interference from financial stability issues. US yields are rising 8 bps (2-y) and 5 bps (30-y). Expectations on Fed interest rate cuts eased a bit post the report. Still, the market discounts about 75 bps of rate cuts by the December meeting. German yields add 9-10 bps across the curve with the short end outperforming (+6 bps). Good eco news this times is also seen as good for equities, with Eurostoxx50 rebounding 0.8%. US indices open with gains of about 1.0%. Easing fears on an imminent (US) recession, also support a bottoming process (Brent) oil, rebounding to $75 p/b compared to a correction low just north $ 71 p/b earlier this week.
After nearing (DXY) or outright testing (EUR/USD) key support levels yesterday, the dollar gained some further traction, but gains are far from impressive. DXY trades at 101.65 (from 101.34). EUR/USD eased to 1.098. Still the technical picture for the greenback hasn’t improved in any profound way. Even the gain in USD/JPY remains disappointing (134.80, with the week top still at 137.77). Despite higher core yields most smaller currencies perform well (EUR/SEK 11.22 from 11.286, EUR/NOK 11.65 from 11.8). This also applies to the CE currencies (EUR/CZK 23.40, EUR/HUF 372, EUR/PLN 4.575).
News & Views
The FAO Food Price Index by the UN showed a slight rebound in April (+0.6%) – the first increases since March 2022 – led by a steep increase in the sugar price index (+17.6%), along with an upturn in the meat price index (+1.3%), while the cereals (-1.7%), dairy (-1.7%) and vegetable oil price index (-1.3%) continued to drop. The Sugar Price Index rose for a third consecutive month to the highest level since October 2011. The increase was mostly related to heightened concerns over tighter global availabilities for India and China, along with lower-than-earlier-expected outputs in Thailand and the EU. The Cereal Price Index is down 19.8% Y/Y. A decline of in world prices of all major grains outweighed an increase in rice prices month on month. International wheat prices declined to their lowest level since July 2021.
Canadian payrolls beat market consensus. Employment grew by 41.4k in April (vs 20k expected). Details were more mixed with part time employment completely responsible for job gains (+47.6). Full time occupations dropped by 6.2k. The unemployment rate and participation rate both stabilized at respectively 5% and 65.6%. Interestingly, hourly wages for full time FTE rose by 5.2% Y/Y (vs 4.8% Y/Y). The loonie holds on to its daily gains against the dollar even as the greenback profits from strong US payrolls. CAD strength on today’s data has much to do with relatively hawkish comments by BoC governor Macklem yesterday who suggested that more work had to be done even as the BoC paused its tightening cycle since January. USD/CAD fell from 1.354 to 1.3475. First support remains far at 1.3302. Canadian swap yields rise around 10 bps across the curve today.
