Head of FX Strategy
The US jobs report was strong on all fronts. The payrolls growth was +223,000 versus less than 200,000 expected and the net revisions to the prior two months’ data was in at +15,000. Most importantly, on the average hourly earnings front, earnings bumped +0.3% higher month-on-month versus +0.2% expected and a disappointing +0.1% in April and this took the year-on-year figure to +2.7% vs. 2.6% expected.
This should have the market more fully pricing back in that June 13 Federal Open Market Committee rate hike that was beginning to look like slightly less of a sure thing recently after the recent EU sovereign debt flash crash and some adjustment in the latest Fed language on how it intends to react “symmetrically” to inflation now that the 2% inflation target is coming into view.
The immediate question for traders is what this means for the dollar after several gear shifts recently. For USDJPY, it is positive if rate anticipation heads back higher and especially if the recent reversal in long US rates has proven a false one (the 10-year benchmark, currently at 2.91%, needs to get back above 3.0% and higher in a hurry to indicate this can happen, otherwise, we don’t expect much from USDJPY and see 110.00-25 as the key pivot/resistance area).
Elsewhere, USD support may be a bit sluggish if risk appetite improves and the market starts to pick up interest in pricing rate hike anticipation higher elsewhere as the Fed is seen on a gradual hiking course and set to indicate a desire for more flexibility at the June 13 FOMC meeting (which will initially be read as dovish unless we see several months of more inflationary or strong US data).
Higher US Fed expectations and US yields together with risk off would be the most positive USD scenario.
2024: The wasted year
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
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