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• US payrolls print higher than expected, but unemployment rises while wages ease
• Asian, European and US equities close the week with solid gains
• UST lead gains in core global yields. UST curve bear flattens. 2y +16bps, 10y +10bps
• Fed pricing points to a bias for a June pause, but a July hike now looks more likely
• President Biden signs bill to lift debt ceiling, averting risk of US default
• China mulls new measures to support property sector and boost the economy
• USD indices up ~0.25/0.5% with EUR and JPY notable underperformers
• AUD retains most of its minimum award wage increase gains. Starts the new week above 66c
• Oil heads gains in commodities with precious metals underperforming
• OPEC+ weekend meeting – S Arabia to make 1m b/d additional supply cut

• Coming up Today: AU Q1 GDP partials, CH Caixin PMIs, Final May PMIs, US ISM Services
• Rest of the Week: RBA & Lowe, AU Q1 GDP, BoC, , CH Trade/PPI/Aggregate Financing

Events Round-up

• US May Non-Farm Payrolls 339k, 190k f’cast, 253k prev, 294k r’vsd
• US May Unemployment Rate 3.7%, 3.5% f’cast, 3.4% prev
• US May Average Earnings MM 0.3%, 0.3% f’cast, 0.5% prev, 0.4% r’vsd

US Treasuries led a rise in core global bond yields with the curve bear flattening. The USD gained around 0.5% in index terms with EUR and JPY notable underperformers while the AUD led a commodity linked outperformance ex NZD. Oil prices spear headed gains within commodities. OPEC+ meeting over the weekend concluded with Saudi Arabia volunteering a million barrels a day cut in production.

The US May jobs report was a mixed bag. The better-than-expected payrolls number at 339k vs 190k expected plus 90k of upwards revisions to the previous two months suggests the US labour market remains in rude health. Of note too, the May’s 339k print was the 14^th consecutive payrolls report to beat forecast. In contrast the May household survey provided a more pessimistic assessment of the US labour market with a 3-tick rise in the unemployment rate, from 3.4%-3.7%. Meanwhile, US Average Hourly Earnings (AHE) printed at 0.3%m/m, in line with expectations but below the downwardly revised 0.4% (from 0.5%) in the previous month. AHE is running at 4% annualised rate over the past 3 months, suggesting wages growth are no longer inflationary.

Positivity in the Equity market was also supported by resolution of the US debt ceiling saga, after the passing of the bill in the senate late on Thursday, markets closed the week with the assurance that the US will avoid default on federal government’s debt. On Saturday, with just two days to spare, President Biden signed the legislation lifting the nation’s debt ceiling.

Another piece of positive news on Friday came from China with Bloomberg reporting regulators were looking to provide further support to the country’s beleaguered property sector. According to people familiar with the matter, regulators are considering reducing the down payment in some non-core neighbourhoods of major cities, lowering agent commissions on transactions, and further relaxing restrictions for residential purchases under the guidance of the State Council.

So from macro perspective the prospect of a Fed pause in June (more on this below), evidence of a cooling US labour market (ease in wages pressures) plus China looking to provide further support to its economy, provided a nice positive backdrop for the equity market to perform. Indeed, all major equity indices from Asia, Europe and the US close the week solid gains while the VIX ended the week just below 15..

The Dow spear headed US equity market gains, jumping 2.12% on Friday with the S&P 500 1.45% while the NASDAQ climbed 1.07%. For the week the Dow rose 2.02%; the S&P gained 1.83% and the Nasdaq rose 2.04%. Earlier in the day the Hang Seng closed 4.02% higher with US-listed Chinese equities also making decent gains, as did shares of European companies with strong ties to China, such as luxury goods makers and the mining sector. The Eurostoxx 600 gained 1.51% with Japan’s Nikkei +1.21.

Looking at the weekly performance, the NASDAQ close at the top of the leader board (NVIDIA no doubt a major contributor) at 2,01% with the Nikkei and S&P 500 recording gains just under the mark . Our S&P/ASX200 and the UK FTSE 100 were the week’s underperformers, down 0.13% and 0.26% respectively.

Equities Performance

Following the release of the US May jobs report, US Treasuries led a move up in core global bond yield with front end yields recording the biggest gains. The UST curve bear flattened with the 2y Note climbing 16 bps to 4.501% while the 10y rate gained 10bps to 3.695%. In a similar fashion, the German curve also bear flattened on Friday with the two-year Bund yield rising 9bps to 3.54% compared with 6bps on the 10-year rate to 2.95%.

The US jobs data boosted expectations of Fed hikes over coming months. Bets on a hike at the June 13-14 meeting next week rose, although investors still see a bigger chance the Fed will pause. A 25bps hike next week was priced 31% probability on Friday’s close, up from 24% a day earlier. Meanwhile the probability of a 25bps hike in July climbed from 40% to 50%. Of note too, expectations for Fed rate cuts were also pushed out in time with the Fed funds rate seen at 4.99% by the end of the year compared to 4.85% on Thursday.

Notwithstanding the rise in yields on Friday, a look at the weekly chart reveals a broad base decline in core global bond yields over the past five days.  10y UST yields are down 10bps relative to levels a week ago while a reassessment of Europe’s inflation outlook, after the weaker than expected May CPI figures, shows 10y Bunds down 22bps relative to levels a week ago while Italian BTPS are -32bps.

US Treasuries over the past week

The USD was on the backfoot prior to the US Jobs data release, but the better-than-expected headline numbers and rise in UST yields triggered a reversal in fortunes. In index terms the greenback close between 0.25% to 0.44% stronger on the day with the euro and JPY notable underperformers within G10. The euro fell 0.5% on the day, closing the week at 1.0707 while the move up in UST yields boosted USD/JPY, up 0.84% to just under the ¥140 mark.

The AUD was the top performer on Friday, retaining most of its minimum award wage increase gains recorded during our time zone. On Friday, Australia’s Fair Work Commission determined an increase to minimum award wages of 5.75%. That compares to an increase of 4.6% for most awards in last year’s decision and takes effect on 1 July. The decision triggered an increase in RBA rate hike expectations and boosted the AUD. The market now prices a 40% chance of a 25bps hike this week and 0.89% chance of a hike in July, up from 21% and 44.5% respectively on Thursday. The AUD closed Friday 0.5% higher at 0.6607 and starts the new week at 0.6617. The NZD had a more subdued Friday, closing the week at 0.60585, little changed on the day and indeed on the week too.

Looking at the weekly chart, the AUD was the G10 outperformer over the past 5 days, up 1.43% with CAD close behind, up 1.40%. The RBA and BoC meet this week and in both instances the market is leaning towards a no hike, but with pricing for a hike at around 40% for both, there is still a non-negligible chance the RBA and or the BOC could hike.

The USD lost ground during the week (BBDXY -0.35%) and in addition to gains from AUD and CAD, the greenback also underperformed against GBP with the pound up 0.8% on the week to 1.2459. For the week the EUR/USD eased 0.23% while JPY gained 0.48%.

FX Performance 

On Friday news that Beijing will likely roll out policy stimulus to reinvigorate a faltering economic recovery, lifted commodities including copper (0.44%) and iron ore (1.78%). Gold fell 1.53% to $1,947 and for the week it was flat. WTI crude rose 2.52% to $71.74 and Brent was +2.49% to $76.40. Oil is expected to rise today after the OPEC+ meeting over the weekend concluded with Saudi Arabia volunteered a million barrels a day cut in production.

Commodities Performance 

Coming Up

• Ahead of the Q1 GDP release on Wednesday, this morning Australia releases GDP partials (Inventories 03%qoq exp. vs 0.2% prev, Co Profits 2% qoq exp. vs 10% prev.) alongside Job Ads for May. China’s Caixin Services and Composite PMIs readings are also out this morning with the market looking at a small ease in Services activity from 56.4 to 55.2.
• Final PMI readings are also published around the globe today, the Eurozone gets PPI figures for April and tonight the US issues factory and durable goods orders for April alongside the all-important ISM Services Survey for May. Consensus expect the Services headline to print at 52.5 up from 51.9 in the previous month. 
• Looking at the rest of the week, the RBA cash rate decision on Tuesday is the key domestic event this week. We think it is a question of when not if the RBA will raise rates further. Expectations for a rate hike on Tuesday ticked up late last week (now seen at 36% probability for a 25bps hike to 4.10%) following the higher than expected award wage decision by the Fair Work Commission. Governor Lowe will be able to justify the decision in more detail when he speaks in Sydney on Wednesday morning (note Deputy Governor Bullock is appearing on a panel the same day). Data wise, Q1 GDP data is on Wednesday, where we pencil in a 0.2% q/q outcome (consensus 0.3% q/q). April Trade Data is Thursday.
• Looking at offshore markets, the BoC meets on Wednesday and while the consensus is for an unchangedoutcome, markets are pricing a 33% chance of a 25bp rate hike. China data releases are also likely to garner some attention with Trade Balance, CPI/PPI and Aggregate Financing all due for release this week.
• This week we won’t be getting any Fed soundbites as Fed speakers begin their blackout period ahead of the FOMC June 14 meeting. Thus attentions is likely to be centred on ECB speakers with ECB Lagarde and Nagel speaking on Monday while Guindos, Panetta, De Cos and Centero speak later in the week.

Market Prices

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