After EA Inflation, Focus Turns to the US Labour Market Report

Market movers today

Today, the traditional US Jobs Report will round of an eventful week of macro data. Consensus is looking for moderating non-farm payrolls growth (190k; from 253k), but we see some upside risks after most leading employment indicators and yesterday’s ADP report have surprised to the upside.

The US congress is nearing the finish line with the debt ceiling discussions. We expect the Senate to pass the deal before Monday, when the Treasury has warned about a potential risk of a default.

The 60 second overview

Euro area inflation print released yesterday confirmed the disinflationary prints from country releases in previous days. HICP came in at 6.1%, a sharp drop from 7% in April. Core inflation also slowed more than anticipated to 5.3% from 5.6% in April. For now, the introduction of the EUR49m German transport ticket is likely to have been a key reason for this decline and hence we should be careful interpreting this core print. A detailed look at the breakdown showed that services eased to 5.0% from 5.2% in April. The non-energy industrial goods continued its decline from the peak reached last year and printed at 5.8% (from 6.20% in April). Food eased at 12.5% from 13.5% in April. Energy contributed again with a negative print of -1.7% yoy.

Sweden PMI print comparably low at 40.6. All sub-indices weighed, especially orders. Even export orders dropped sharply to 37.5 (44.9) – despite the weaker SEK one might add. This increases the dilemma for the Riksbank not least given that the domestic economy is already down for the count (households and housing), while on the other hand inflation is too high and SEK weak.

US debt ceiling discussion is coming to an end for now as the Senate approved the legislation, which means that now only Biden needs to sign it off.

US data, with ISM coming in weaker and unit labour costs lower than anticipated, were a catalyst for a minor reaction in markets yesterday. The particularly surprising part of the ISM release was the significant drop in prices paid to 44.2, well below the consensus of 52.3, which now means that we may start to talk about falling goods prices.

Equities: Global equities higher yesterday in broad based gains and a risk-on tone with cyclicals leading the advances. Macro data as always overwhelming the first day of a new month and we honestly admit we would not have been surprised if equity markets had looked very different based on the data releases.

In US Dow +0.5%, S&P 500 +1.0%, Nasdaq +1.3% and Russell 2000 +1.1%. Asian markets are continuing the positive tone this morning. China (Hang Seng) in strong advances after a period where it has underperformed much of the rest of the world. Performance in China today looks more like a technical one after the long sell-off rather than driven by new information or data releases. Futures are higher in Europe and US.

FI: It was a tale of two stories yesterday. The European inflation print did not change the market pricing, which was broadly unchanged until the US data release led to a lower yield environment. Jobless claims, unit labour costs and ISM (in particular prices paid), initiated a minor rally in the belly of the curve. The front end and long end respectively were broadly unchanged on the day. Markets are still focusing on two additional hikes from the ECB, while Fed’s Harker (voter) said that they should skip this June meeting for rate hikes. Yesterday afternoon Villeroy said that the remaining hikes will be ‘relatively marginal’.

FX: The weaker-than-expected ISM data yesterday shifted money market pricing back towards a Fed pause at the June meeting, and sent both stocks and bonds higher on the day. The USD however weakened broadly, with EUR/USD rising close to a full figure on the day. Scandi FX gave back some of Wednesday’s gains in volatile trading. EUR/GBP posted a new 6M low and we expect Sterling momentum to continue in the near-term.

Credit: It was an active day in the EUR corporate segment with issuance from Italgas, RCI Banque, Statnett and Unilever, while in financials BFCM placed a dual-tranche senior preferred transaction. CDS indices tightened with iTraxx Main closing at 79bp (-3bp) and Xover at 424bp (-10bp).

Nordic macro

The Norwegian labour market remains tight but is showing some signs of weakening. New job openings are down, and the number of jobless has begun to edge up. Short-term unemployment too has started to climb, which is often an indication of rising unemployment further ahead. We expect this trend to have continued in May, but with the seasonally adjusted jobless rate unchanged at 1.8%.