Markets
The US jobs report delivered yet another big beat in the headline figure, the 14th in a row. Employment grew a whopping 339k in May with the previous two months revised up by 93k. That brings about a total upward surprise of 237k. Average hourly earnings were more or less as expected, coming in at 0.3% m/m to be up 4.3% y/y. That’s one tenth below consensus and the April figure. There are some inconsistencies though with the unemployment rate rising from 3.4% to 3.7% vs 3.5% expected despite the bumper payrolls growth and a stable participation rate (62.6%). This is because the number is derived from a separate household survey where employment instead of rising, dropped by no less than 310k. After a kneejerk rate move higher which went to 10 bps and more at the front, gains were cut a bit to 2.9-7.5 bps across the curve as investors stick to the idea of a Fed June rate skip. There’s only one chance in three discounted for a hike. Fed governors including Jefferson and Harker in the run-up did their best to cement such a scenario in market thinking before the blackout period kicks in this weekend. The case for a July hike does strengthen again (about 80% chance). German Bund yields were rising a few bps earlier in the day before temporarily extending gains in sympathy with the US. They remain near the lows of this week though. Current changes vary between 2.3 (30-y) to 6.3 bps (2-y, 5-y).
Strong payroll growth and the yield advance has little effect on the US dollar. An attempt to recoup some of losses incurred against the euro yesterday was in vain. EUR/USD trades around opening levels in the 1.076/1.077 area. The trade-weighted index goes nowhere (103.58). Capping the dollar’s appeal except from US yields quickly retreating from intraday highs is the broad risk-on mood on equity markets. Stocks easily gain 1% and more. Markets cheer at a Bloomberg report citing people familiar with the matter that China is working on a new basket of measures to support the property market. Existing/previous plans including the 16-point rescue package have clearly failed to do the trick. The Chinese yuan rallied against the USD. USD/CNY trades at 7.072, down from 7.103. Commodities including Brent oil (+2.2%), copper (+1.5%) and iron (+2.55%) rally. The likes of the CAD and NZD eke out a small gain. AUD outperforms G10 peers following reports of a 5.75% minimum wage increase this morning.
News & Views
In May, the food price index of the UN Food and Agricultural Organization dropped another 2.6 M/M and stands 22.1% below the all-time high reached in March 2022. The May decline was driven by significant drops in the indices of vegetable oils, cereals and dairy which were partially counterbalanced by increases in the sugar and meat indices. The cereal price index dropped 4.8% M/M. Wheat prices declined 3.5% reflecting the prospects for ample global supplies in the 2023/24 season and the extension of the Black Sea initiative. Prices of maize dropped 9.8% on higher expected production in the US and Brazil. The price of rice was an exception to the broader decline. Vegetable oil price extended their downtrend (-9.8% M/M and 48.2% Y/Y). The decline in dairy prices was more modest (3.2% M/M) with milk powders even rebounding. Meat prices were up a modestly (1.0% M/M), the fourth consecutive monthly increase to be only 4.1% lower Y/Y. The sugar price remains on a sustained uptrend (5.5% M/M, fourth consecutive monthly rise) standing 30.9% higher compared to the same month last year. Rising concerns over the development of the El Niño phenomenon on 2023/24 crops, together with lower-than-earlier-expected availabilities in 2022/23 and shipping delays are said as causing the rise.
According to Reuters reporting, Vice Chairman of the Swiss National Bank (SNB), Martin Schlegel said the SNB remains ready to tighten policy further as it sees inflation spreading across the economy to other goods and services that are not linked to energy and supply bottlenecks. The Vice Chairman also mentioned the potential impact of higher interest rates on rents which could add to inflation later this year. Swiss inflation in April slowed to 0.0% M/M and 2.6% Y/Y. Core inflation was unchanged at 2.2%. The SNB aims to keep inflation between 0.0% and 2.0%. In its March quarterly Bulletin it forecasted inflation to ease for 2.6% this year to just the 2.0% top of the policy range in 2024/2025. The SNB holds its next policy meeting on 22 June, with May CPI data to be published Monday next week. The Swiss franc this week eased off the highest level in more than six months against the euro (EUR/CHF 0.9672) to currently trade near 0.976.
