The US dollar initially extended gains following the release of US non-farm payrolls and wage data. The strong headline payrolls reading saw a bigger than expected increase in hiring and steady wages, which saw softness in Manufacturing and Retail, led Fed fund futures to see the chances of a rate cut be pushed into 2020.
US Data – Labor market remains unstoppable
EUR- Core inflation rises to 6-month high
Brexit – Conservative and Labour lose big
Stocks – S&P slight rebound after biggest selloff in 5 weeks
Oil – OPEC on verge of collapse according to Iran
Gold – Settling higher after NFP report
The Fed may have been right about the transitory effects we are seeing with inflation. The economy is performing nicely, wages did not go up as much as economists expected, but steady wages could help inflation stabilize in the coming months. The headline number for nonfarm payroll report was 263,000 jobs were added, bringing the unemployment rate down to 3.6%, the lowest levels since 1969. Wages stayed steady at 3.2%, slightly below expectations of 3.3%. The dollar initially surged against all of its major trading partners following the better than expected labor data.
Today’s wrath of economic data points that business investment could be coming back on the backdrop of continued solid gains in the labor market. The key report of wages showed that consumer inflation is coming along, albeit not as fast as economists were targeting. This does not change the patient stance that will require us to see data throughout the summer before the Fed signals the next policy move.
The April flash estimate for eurozone inflation rose to the highest level since November at 1.7%, a tick above the consensus, and 0.3% above the March reading. Core inflation, which strips out volatile components also rose to a 6-month high at 1.2%. The euro posted a little reaction following the release, but if we continue to see better data from the euro area along with higher inflation, that will be a turning point for the euro.
Conservatives and Labour both had a tough night with results from local elections. The key message sent was that the public is frustrated with the current leaderships handling of Brexit. Early tallies show Pro-EU Liberal Democrats thrived, gaining 304 seats, while Conservatives lost 450 seats and Labour saw roughly 80 spots go other parties.
Iran’s oil minister can tell his country is feeling the pain of the US sanctions. Today, he warned OPEC that they are the verge of collapse as Saudi Arabia appears set to take on their lost crude sales. Despite a shortage in spare capacity to make up for the immediate shortfall, oil remains under pressure.
Crude prices remain vulnerable on concerns OPEC + will not be able to maintain a meaningful production cut agreement going forward and on the backdrop that we are likely to see increases in production from the US, Saudis and Russians. Brent crude is finding tentative support from the $70 level and West Texas Intermediate crude is seeing buyers ahead of the $60 level.
Earlier bullish catalysts are no longer dominating the headlines, Eastern Europe has found replacements for contaminated Russian crude and the Venezuelan turmoil does not appear to reaching a key climax just yet.
Oil is poised for a second weekly decline and if we continue to see the US production pickup in velocity, crude prices could see a sustained pullback here. Oil did get a boost following the impressive US labor and wage data.
The precious metal is not benefiting from a strong US economy and expectations global growth concerns will continue to be alleviated from a trade deal between the US and China. Gold prices initially spiked lower following the labor report but settled slightly higher as the dollar was not able to hold onto its gains.