Weekly Market Update
Notable events over the last week
In a slow week for meaningful macro data, attention focused on the US JOLTS jobs report and Fed guidance ahead of the June FOMC meeting this week. The hiring rate was little changed in April with job openings hitting 5.8 million (vs. 5.7 million expected and 5.76 million in March). The largest increases were attributable to the wholesale trade, transportation, warehousing, and utilities at 65,000 openings, while the professional and business services saw the biggest decrease, down 274,000 openings. April hires fell to 5.1 million, slightly lower than the previous month’s 5.3 million, with little change in the private sector and down 31,000 for government hires. As the hiring rate is favored by the FOMC, this dropped to just 3.5% marking the lowest level since August 2014
In her speech to the World Affairs Council last Monday, the Fed Chair Yellen noted that “further gradual increases” remained on the agenda however avoided specifying timings. Yellen added that “(there are) good reasons to expect that the positive forces supporting employment growth and higher inflation will continue to outweigh the negative ones” although caveated this with the ‘disappointing’ and ‘concerning’ jobs report earlier in the month. She went on to highlight the unavoidable uncertainties which are likely to impact the US outlook including Brexit and the challenges facing China. Soon after her speech, the probability of a July move fell to just 22% from 27% while a September rate hike currently has a 42% probability.
Separately, the University of Michigan Consumer Sentiment Index reading for June showed that consumers were bullish on their personal finances however have grown more concerned over the health of the economy. The index was higher than forecast (94.3 vs. 94.0 expected) but fell from the previous month’s one-year high of 94.7. Expectations of inflation for the year ahead remained unchanged from May at 2.4%, while long term inflation expectations fell to their lowest levels in nearly fifty years with consumers expecting an average inflation rate of just 2.3% over the next five years (down from expectations of 2.5% recorded in the prior two months).
In Asia, China’s headline CPI declined for the third straight month causing the YoY figure to drop 0.3% to +2.0% (vs. +2.2% expected). The -0.5% drop MoM in May was attributable to a slowdown in food prices which slowed to 4.7% contributing 1.39 percentage points to the headline CPI, as compared with the 1.74 percentage points contributed in April. On the other hand, there was a notable increase in the latest PPI print. Prices rose +0.5% MoM last month which has resulted in the YoY rate increasing to -2.8% (vs. -3.2% expected) from -3.4%.
China’s trade numbers for May also underwhelmed. In USD terms exports weakened further during the month to -4.1% YoY (vs. -4.0% expected) from -1.8% in April while, imports declined -0.4% YoY albeit by less than expected (expected -6.8%) and also relative to April (actual -10.9%). The trade surplus grew by $5.4bn in the month from April to $50bn.
In Europe, the ECB President Draghi warned of the cost of delaying reforms in Europe, stating that “we cannot avoid the fact that, over time, the inherent speed limits resulting from the euro area’s unfavorable demographics will start to bite”. Draghi added that the economic recovery may have been quicker “if fiscal policy had been more supportive” and that the committee must be more accommodative going forward. The most powerful “quick win,” he added, would be to complete Europe’s single market, especially in services, he said.
Lastly, the UK’s April industrial production report surprised to the upside last week up +2.0% MoM (vs. 0.0% expected). This marks the largest monthly increase since 2012, lifting the YoY rate to +1.6% from -0.2% in the month prior. Manufacturing production was also up a robust +2.3% MoM during the month (vs. -0.1% expected and +0.1% in March) boosted by large gains in the Pharmaceutical sector.
Coming up this week (Source Bloomberg)
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