Originally published by Rivkin Securities
US non-farm payrolls figures were weaker than expected on Friday with 138,000 jobs added during the month of May, less than the 182,000 forecast while both the figures for March and April were revised lower by a total of 66,000 lowering the three month average to 121,000. Wage growth also missed estimates, rising +2.5% year-on-year compared with forecasts for a +2.6% increase. Overall the report was soft but not weak, with the unemployment rate decreasing to a 16 year low at +4.3% compared with +4.4% prior while the closely watched underemployment rate decreased to +8.4% form +8.6% prior. Estimates suggest that only around 100,000 per month are needed to keep the unemployment rate stable given population growth and the reading is unlikely to deter the FOMC from hiking rates on June 14th.The key focus will be on the forward guidance for the subsequent rate hikes.
The US 10-year treasury yield dropped -6 basis points to +2.159% following the report while the two-year yield only decreased by -1 basis point. The reaction in the ten-year yield implies that the market sees a third rate hike in 2017 as diminishing although still a very real possibility with Fed Fund futures for the end of year implying a 40.2% chance of a third rate hike up from +36.8% a week earlier.
US equities brushed off the softer jobs report, with both the S&P 500 and Nasdaq 100 once again reaching new all-time highs, gaining +0.37% and +1.12% respectively. The US Dollar Index weakened -0.50% in line with US treasury yields boosting spot gold +1.13%.
Oil prices weakened following the US Baker Hughes Oil rig count that showed the number of active oil rigs for the week ending June 2nd rose by 11 to total 733 having doubled over the past twelve months from 325. Both WTI and brent crude dropped -1.45% and -1.34%
There will be plenty of data for investors to focus on this week with Australian inventories and company profits (QoQ Q1) reported today at 11:30am, an RBA rate decision on Tuesday at 2:30pm (no change expected), Australian GDP (QoQ & yoY Q1) 11:30am on Wednesday, Japanese GDP (QoQ & YoY Q1) 9:50am on Thursday, Euro-zone GDP (QoQ & YoY Q1) 7:00pm AEDT, an ECB policy decision at 9:45pm on Thursday, a number of PMI reports globally as well as Chinese inflation around midday on Friday.
The ECB meeting on Thursday night Sydney time will be a key focus as the market looks for the ECB to take small step down the path for eventually tightening policy. No changes are expected to be announced however investors are looking for the ECB to drop the easing bias from its policy statement to clear the way to begin tapering the current QE program from December.
Also in focus will be the UK elections on Thursday with the results coming in throughout the day on Friday Sydney time. Polling has suggested a varying set of results from the Tories gaining a 100 seat majority to losing their majority although expectations are still for PM Theresa May’s conservatives to come out on top. One of the first regions to announce results will be Sunderland with investors using this as a gauge for voting in the rest of the country so we should have a good indication for the outcome early on. Any extension of the current 12 seat majority will be Pound positive, strengthening Theresa May’s Brexit negotiations even allowing concessions to be more easily made, any failure to expand on this majority will weaken the PM’s negotiation position strengthening the influence of Brexiteers within her own party.
Locally we can expect an extension of Friday’s +0.87% gain for the ASX200 with SPI200 futures finishing +10 points or +0.17% higher on Friday. If you’re interested in trading global markets and still need practice, click here to open a free $100,000 Rivkin Trader account.
Data releases:
· Japanese Nikkei Service & Composite PMI (MoM May) 10:30am AEDT
· Australian TD Securities Inflation (MoM & YoY May) 11:00am AEDT
· Australian Inventories (QoQ Q1) 11:30am AEDT
· Australian Companies Operating Profits (QoQ Q1) 11:30am AEDT
· Chinese Caixin Services & Composite PMI (MOM May) 11:45am AEDT
· Euro-zone Services & Composite PMI (MoM May) 6:00pm AEDT
· UK Services & Composite PMI (MoM May) 6:30pm AEDT
· US ISM Services Composite (MoM May) 12:00am AEDT
· US Durable Goods Orders (MoM Apr) 12:00am AEDT