Since most Australian states went home for the three day weekend  the main market price action has been a fairly sharp fall it the NASDAQ  of some 2.5%, seemingly driven by a succession of negative analyst reports on valuations,  renewed selling of Sterling on Monday after a reprieve in offshore market on Friday, and a jump in the Canadian dollar after Senior Deputy Governor or Carolyn Wilkins gave a fairly strong hint that the Bank of Canada is shifting to a ‘tightening bias’ given recent improvements in the economic data.

US bond markets have been treading water in front of the two day FOMC meeting that commences tonight, 10s stuck around 2.2%, while the Australian dollar has been spent most of its time meandering within a narrow 0.7420-0.7445 range.  In Europe, the first round of voting for the French National Assembly has produced indications for a strong working majority for President Macron’s ‘Republic on the Move’ party.  At this stage, this is showing up in a fall in French government bond yields rather than a firmer Euro.

Selling pressure on all things GBP re-emerged on Monday, with GBP/USD falling to a fresh low of $1.2640 and AUD/GBP to the intra-day highs above 0.5950 seen during our session on Friday when the news of the indecisive election results was first absorbed. PM May’s two senior advisers – whose advice was presumably the reason for calling the election in the first place – were on Friday the first victims of the result.

After markets on Friday entertained thoughts of a softer Brexit, focus Monday turned to the unstable nature of the new government and the precarious position of PM May, an unfriendly backdrop for spending and investment. With open speculation of a second election this year, one opinion poll published on Monday puts Labour ahead of the Conservatives.  There has also been no indication as yet from 10 Downing Street that a change of tack on the government’s Brexit position is imminent.

Sterling weakness Monday contrasts with Canadian dollar strength, after the BoC’s Wilkins said that “As growth continues and, ideally, broadens further, Governing Council will be assessing whether all of the considerable monetary policy stimulus presently in place is still required,” USD/CAD is currently down 1.1% to 1.3325 and AUD/CAD -0.9% to 1.0049. The Bank of Canada doesn’t meet for another month.

A steady AUD has come despite the latest drop in iron ore prices on Friday, to $54.41 and the lowest levels since 1st July 2016. The small recovery overnight still leaves then sub-$55. Other commodity prices, including oil, are quite narrowly mixed since we went home on Friday.

Coming Up

It’s a holiday shortened week but a big one both domestically and internationally, featuring the Fed, latest Australian labour market data, the NAB business survey and consumer confidence – alongside the on-going legal travails of the Trump administration and how that plays into confidence – or lack thereof – in fiscal and regulatory aspects of the Trump agenda (including the timely lifting of the debt ceiling). US data includes CPI, retail sales, and industrial production. NZ has Q1 GDP data on Thursday, Wednesday sees the mid-month slug of China activity readings for May, covering industrial production, retail sales and fixed asset investment.

For the Fed, where the outcomes will be known at 04:00 AEST Thursday morning our time, a quarter-point lift to the Fed Funds rate (to 1.0-1.25%) looks nailed on and anything other than retention of the end-2017 median ‘dot’ at 1.375% (i.e., a 1.25-1.50% Fed Funds rate target) would also be a major surprise.  If no upsets here, then what happens to the 2018 dots could be important, as too any further guidance on balance sheet reduction. Were we to see a lowering of the 2018 median dot (not our view) then even though the market is currently more than 50bps behind the Fed, the USD would likely still fall.

The NAB Business Survey is today, Employment (Thursday); Consumer Sentiment is on Wednesday and Consumer Inflation Expectations Thursday. We make no comment on the NAB Business Survey as usual apart from stating what it did last month. In April the survey remained well above its long-run average levels with conditions at +14, while the employment sub-index rose to +8, the later consistent with official employment growth of around 20k a month.

Employment Thursday is the likely focal point for markets domestically. The market consensus looks for employment growth +10k m/m after two consecutive months of strong reads (Chart 1). NAB’s read of the leading indicators suggests upside risk to the market consensus with our models pointing to a +21.3k m/m outcome, informed by our own business survey from April as well as the pace of job advertisements which has picked up in recent months.

For the unemployment rate, both NAB and the market are expecting an unchanged 5.7% outcome. Such an outcome would be slightly better than the RBA’s unemployment track from the May SoMP.

Overnight

On global stock markets, the S&P 500 was -0.10%. Bond markets saw US 10-years +1.05bp to 2.21%. In commodities, Brent crude oil +0.29% to $48.29, gold-0.3% to $1,265, iron ore +0.8% to $54.87, steam coal +0.0% to $79.45, met. coal +0.2% to $144.00. AUD is at 0.7541 and the range since yesterday 5pm Sydney time is 0.7522 to 0.7547.

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• Markets Today: 13 June 2107 (PDF, 110kb)

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