See the latest Australian dollar analysis here:
All markets are becalmed. They are waiting for US jobs come Friday. The BLS release has within it the prospect of breaking today’s impasse. If jobs boom then the recovery narrative can gather speed and DXY rally. If they stall again on supply-side hiccups then markets will probably push back Fed action. DXY and EUR are in the meantime swapping footy cards:
Australian dollar is stalled:
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Oil has broken out, however. Bring on the shale!
Base metals were soft:
And big miners:
EM stocks are trying:
Junk is fine:
US yields do not look at all convinced by inflation:
Stocks are stalled as well:
Westpac has the data:
The Fed’s Beige Book of regional economic conditions noted that the pace of the U.S. recovery had picked up somewhat in April and May: “The national economy expanded at a moderate pace from early April to late May, a somewhat faster rate than the prior reporting period,” the U.S. central bank said in its Beige Book survey released on Wednesday.
Canadian April building permits displayed further underlying strength in the housing sector.
Although the April level dipped -0.5%m/m, expectations were for a pullback of -5.0%m/m and the prior March rise was revised to a stronger +7.6m/m from +5.7%m/m.
Eurozone PPI for April was as expected, rising +1.0%m/m to +7.6%y/y.
German retail sales surprised with a larger lockdown related fall of -5.5%m/m (est. -2.5%m/m).
Australia: For April, the trade balance surplus widens to a forecast $9.3bn, up from $5.6bn for March, just short of January’s record high, $9.5bn. The export uptrend likely resumed in April, up a forecast 7%, $2.7bn, after a brief dip over the past two months. Imports, after back-to-back strong gains, 4.7% and 4.3%, are expected to pull-back, -3.3%, -$1.1bn. The underlying trend, goods imports are recovering as the economy reopens.
Preliminary estimates showed another firm 1.1% gain in April retail sales following a 1.3% rise in March and a patchy start to the year. The gain was led by NSW and Vic, both up 2% with sales flat across the rest of Aus. By store-type, cafes and restaurants were a standout, recording a 2.5% rise. The final release may see slight revisions and will include the full survey detail – sales by storetype, state, firm size and online vs in store. Ahead of the May update, the AiG PCI is sitting 2.7pts below its March record high. The Homebuilder program remains key to the strength of the sector.
New Zealand: May ANZ commodity prices should show meat prices coming to the agricultural export price party.
China: The May Caixin Services PMI is expected to hold around 56.2, with the services sector in its 13th consecutive month of expansion.
US: We are looking for the May ADP employment change to print at +650k, although we caution that this measure can be out of sync with the official nonfarm payrolls. Initial jobless claims should continue to grind lower as labour market slack is absorbed (market f/c: 388k). The May ISM non-manufacturing survey is set to show an ongoing expansion of the services sector on vigorous consumer spending (market f/c: 63.0). The FOMC’s Bostic, Harker and Quarles will speak.
And Credit Suisse the assessment:
The start of June sees the market grappling with many of the same problems as it was facing in May. In days gone by, data volatility and uncertainty was sufficient to make calling FX markets tricky. But now, this is enhanced by the added difficulty of judging how central banks will interpret key numbers. For example, are high inflation numbers worthy of taking seriously or simply a transitory phenomenon? Also, can employment numbers be taken at face value or are there significant caveats needed to account for post-pandemic rigidities? And will central banks consider such issues in a relatively consistent manner (both across time and relative to each other) or will their reaction functions be unstable?
Against this backdrop, Friday’s May US employment data likely top the near-term priority list. Last month’s release of Apr data (released on 7 May) was a material downside surprise, with the headline payrolls number being just 266kvs over 1mio expected, and the jobless rate rising to 6.1% vs an expected5.8%. These numbers helped take some pressure off the Fed by allowing it more time to persist with a dovish narrative, and certainly went some way to eliminating for most market observers any chance of talk of asset purchases tapering making its way onto the agenda for the 16 Jun FOMC. Thus, even as longer-term inflation breakevens pushed ever higher after last month’s payrolls release, US nominal rates stayed subdued and real rates fell, helping to pin the USD back against a range of currencies. This process was further aided by the decline in shorter-term US rates amid clear signs of excess liquidity linked to both asset purchases and also the drawdown of the Treasury’s balances at theFed, a process which has helped prevent any decline in the US 10-2 year spread.
This month, the market is looking for a 653k headline payrolls number, and a 5.9% unemployment rate. Much electronic ink has been used since last month debating why exactly the Apr US employment numbers were so weak, with theories including the idea that unusually high unemployment benefits are preventing job openings being filled. Others have argued there are frictional problems linked to ongoing vaccination gaps or school re-openings, while some even suggest that that high asset prices are tempting baby boomers to leave the labour force for good. While these theories may have legs, it could also simply be the case that the month-by-month data will be unusually volatile for a period, with large revisions also possible. Taking all this together, every possibility exists between yet another weak month (if e.g.unemploymentbenefits are restraining people taking poorly paid vacancies) to a very strong month AND a strong revision to the previous figures (if actually last month’s numbers were pure statistical aberrations). This situation is in line with what CS economists call a “data fog” in which markets are not able to use traditional data to guide their way through uncertainty.
Given this is the case, it might be somewhat surprising to see that implied volatility in FX markets for tenors that cover this week’s US jobs numbers are at relatively low levels, even compared to last month. This probably reflects above all a sense that the Fed is unlikely to talk tapering this month whether the numbers are strong or weak, and may be waiting to see more data in Jul and Aug ahead of the 26-28 Aug Jackson Hole event, which remains a market favourite for when Fed tapering talk begins in earnest. In this context, our best assessment is to hold onto the view that the USD is unlikely to get a very big lift from Friday’s numbers, and we continue to stick to the idea that amove towards 2021 highs near EURUSD 1.2350 remains feasible ahead of the 10 Jun ECB meeting.
My own loosely held view is we will probably see a better report but not one that decides the debate. But that’s pure guesswork, as it always is with labour market reports.