In a night full of potential risk events – both OPEC and the ECB met – little actually happened. Markets mostly treaded water, and most US economic data was bang in line (Jobless Claims at 267k, and ADP payrolls at 173k) ahead of Friday’s US Non-farm Payrolls release (see Coming Up for details).

The UK’s referendum on EU membership on June 23 (termed Brexit) continues to be a dominating theme and Bon Jovi’s Livin’ On a Prayer gives a nod to how close the polls are now with the “Exit” camp marginally ahead. Although the Pound was little changed overnight, it has fallen over the past two days.

Most major sovereign bond yields moved lower overnight, and although there does not appear to be a clear catalyst, it appears Brexit fears are a factor. UK Gilt yields declined by around 2.9 bps to 1.34% and US Treasury yields also moved lower falling 3bps to 1.81%. The Fed’s Kaplan (non-voter) also hit the wires last night stating he sees “some immediate tail risk if [the] UK votes to exit [the] EU” and that “we need to be prepared if the UK” does exit. Despite those dovish remarks, Kaplan still thinks it is appropriate for the Fed to lift rates and in NAB’s opinion the proximity of the Brexit vote to June’s FOMC meeting tips the balance to a July rate hike with the market ascribing around a 60% probability. In related news, Q1 activity in the US may have been stronger than the headlines suggest with the statistical agency responsible for GDP reinforcing suggestions that Q1 GDP could have been distorted by residual seasonality with a paper stating “real GDP exhibits residual seasonality”.

Equities were quiet overnight with the Euro Stoxx down 0.2% along with the FTSE 100 which fell 0.1%. The US S&P500 initially dipped lower as well, but ended the day up 0.2% with health stocks outperforming up 1.3% on the day and extending their recent rally. Amongst currencies the Aussie and the Yen were the biggest movers in opposite directions with the Aussie falling 0.5% having ground lower following the weaker than expected retail sales number. The Yen in contrast rose 0.6%. Other major currencies were mostly lower with slight US dollar strength with the Kiwi down 0.2% and the Euro down 0.3%.

The OPEC meeting last night was of little significance and there was little coordination given geopolitical tensions between Iran and Saudi Arabia. That initially saw oil dip lower, before reversing on data that showed US oil inventories fell with WTI oil unchanged at US$49 a barrel.

The ECB meeting was also fairly quiet with some signs that Draghi appeared a little more confident stating the “probability mass had shifted upward, though not dramatically”. We think there will be little to come out of the ECB in months ahead with the ECB just starting its expansion of asset purchases into Corporate debt (commences 8 June) and the new Target Long-Term Refinancing Operation – where banks can effectively borrow at zero or below due to start on the 22 June.

Coming Up

There is nothing on the domestic calendar and the main game internationally will be US Non-farm Payrolls tonight along with other components of the employment report. In the US we also have also have the Non-manufacturing ISM and US Fed speakers – non-voter Evans and voters Brainard and Mester. Governor Brainard is the highlight speaking on the “Economic Outlook and Monetary Policy” and she has not given a monetary related speech for some time. Given her international focus her views on the Brexit vote will be closely watched.

For Payrolls tonight, the Atlanta Fed’s Jobs Calculator suggests around 120k payrolls are required to keep the unemployment rate unchanged and the Fed’s Kaplan also stated overnight that around 100-150k payrolls is breakeven. That suggests a payrolls print north of 125k would be enough for the Fed. The market is currently expecting 160k jobs and for the unemployment rate to decline to 4.9% from 5.0%. That pace of growth is a step down from the 200k+ pace recorded over past months with the market incorporating some downside risk due to recent strike action at Verizon. Why? US payrolls are collected for those who are paid in the pay period including the 12^th of the month and 35.1k Verizon employees were on strike action during May and hence not being paid.

Other data worth watching today are the Services PMIs that are released for China, Japan and the Eurozone. The Caixin China PMI will be the closet watch, providing an alternative read to the official non-manufacturing PMI which declined to 53.1 in May from 53.5 the previous month. Retail Sales are also released for the Eurozone and the US also has Trade Balance Data for April.

Overnight

On global stock markets, the S&P 500 was +0.18%. Bond markets saw US 10-years -2.95bp to 1.81%. In commodities, Brent crude oil +0.36% to $49.9, gold-0.1% to $1,211, iron ore -0.5% to $48.18. AUD is at 0.7223 and the range since yesterday 5pm Sydney time is 0.7205 to 0.7234.

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• Markets Today: 3 June 2016 (PDF, 1MB)

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