MNI US OPEN - US Nonfarm Payrolls Expected to Partially Rebound

NEWS

MNI US PAYROLLS PREVIEW: Partial Rebound Amid Overall Slowdown

Nonfarm payrolls are expected to partially rebound in May from April's surprisingly low 175k, with 188k in headline gains per MNI's sell-side analyst median. While still an acceleration from the prior month, the consensus outcome if realized would be seen as reinforcing the view that the labor market has shifted into a softer but still-solid phase of growth. The rebound is seen being led by a recovery in government job gains. Private payrolls are seen posting a fairly flat rise of roughly 160k, vs 167k in April, with health and social assistance sector payrolls still providing the biggest boost.

MNI POLITICAL RISK ANALYSIS: European Parliament Election Preview

Voting is underway in the multi-national elections to the European Parliament (EP). Across the EU’s 27 member states over 361mn voters will be eligible to cast their ballots to elect the 720 members of the European Parliament (MEPs), making it the second-largest democratic exercise on Earth behind only the Indian general election. The election in the Netherlands takes place on 6 June, with other member states holding theirs on subsequent days until 9 June, when member states representing nearly 90% of the EU’s population cast their ballots.

US (BBG): Moody’s May Cut Six US Banks on Commercial Real Estate Exposure

Moody’s Ratings said at least six US regional banks with a substantial exposure to commercial real estate loans are at risk of having their debt ratings downgraded. The long-term ratings of First Merchants Corp., F.N.B. Corp., Fulton Financial Corp., Old National Bancorp, Peapack-Gladstone Financial Corp. and WaFd were placed on review for downgrade by the ratings provider. Regional banks with a substantial concentration in commercial real estate loans face ongoing asset quality and profitability pressures as higher-for-longer interest rates heighten longstanding risks, especially during cycle downturns, Moody’s said in separate statements.

US/UKRAINE (NYT): Biden to Meet With Zelensky as Ukraine Seeks Revival on Battlefield

President Biden plans to meet with President Volodymyr Zelensky of Ukraine on Friday at a critical juncture in the war with Russia as the two allies seek ways to reverse the momentum on the battlefield. The two presidents are to sit down in Paris where they are participating in ceremonies marking the 80th anniversary of the D-Day landings that helped turn the tide against Nazi Germany in World War II. Mr. Biden will travel later in the day back to Normandy to deliver a speech honoring U.S. soldiers and linking that long-ago war to today’s conflict in Ukraine.

US/ISRAEL (BBG): Netanyahu Invited to Address Both Houses of Congress on July 24

Israeli Prime Minister Benjamin Netanyahu has accepted an invitation to address a joint meeting of the US House and Senate on July 24, House Speaker Mike Johnson’s office announced on Thursday night. “The bipartisan, bicameral meeting symbolizes the US and Israel’s enduring relationship and will offer Prime Minister Netanyahu the opportunity to share the Israeli government’s vision for defending their democracy, combating terror, and establishing just and lasting peace in the region,” according to a statement from Johnson and Senate Minority Leader Mitch McConnell, both Republicans.

ECB (BBG): Schnabel Says ECB Can’t Pre-Commit Amid Uncertain Price Outlook

The European Central Bank is facing high uncertainty about the consumer-price outlook and needs to stay cautious about borrowing costs, according to Executive Board member Isabel Schnabel. “As the future inflation outlook remains uncertain, we cannot pre-commit to a particular rate path,” she said on Friday in Berlin. Speaking at a conference at the German Ministry of Finance, Schnabel — the ECB’s official in charge of markets — highlighted that inflation expectations in the euro area have returned to the vicinity of the 2% target.

ECB (BBG): Makhlouf Says It’s Unclear How Fast ECB Will Carry On, If at All

It’s not clear when the European Central Bank will lower interest rates again — or if at all — as the inflation outlook remains uncertain, according to Governing Council member Gabriel Makhlouf. “We’re now confident that the disinflation process is working. It doesn’t mean incidentally, that we know how fast we’re going to carry on or if at all because — this is the phrase we’ve been using — the road is bumpy,” he said in interview with RTE Radio 1.

CHINA (BBG): China’s PBOC Halts Gold Purchases After Price Hits Record in May

China’s central bank didn’t buy any gold in May, ending a massive gold buying spree that had run for 18 months after the precious metal surged to a record high. Bullion held by the People’s Bank of China was unchanged at 72.80 million troy ounces in May, according to data released Friday. It’s the first time the country has opted not to add to its reserves since October 2022, and follows a recent move by the central bank to start scaling down the size of monthly purchases. Gold hit an all-time high above $2,450 an ounce in May, supported by strong central bank buying — particularly from Beijing — as the world’s second-biggest economy has sought to diversify its reserves.

RBA (MNI): New RBA Deputy Governor Hauser Reiterates Inflation "Toxic"

The RBA's new deputy governor Hauser from the Bank of England spoke publicly for the first time today in a fireside chat. He said that Australia is in a better economic position than much of the OECD, including the euro area and the UK, but is also different to Canada and the euro area where rates were cut for the first time this week. He said the most important message is that the central bank will bring inflation down rather than signalling where rates are going.

INDIA (BBG): RBI Keeps Rates on Hold as New Modi Administration Awaited

India’s central bank left its benchmark interest rate unchanged, as expected, keeping its focus on inflation amid policy uncertainty following an unexpected election result. The Monetary Policy Committee kept the benchmark repurchase rate at 6.5% Friday, and stuck to its relatively hawkish stance of “withdrawal of accommodation.” Two of the six MPC members voted for a cut, compared with one in the previous meeting.

SOUTH AFRICA (BBG): ANC Invokes Mandela by Seeking South Africa Unity Government

The top leadership of South Africa’s African National Congress said it will seek to form a government of national unity with opposition groups after last week’s election failed to produce an outright winner. “This moment calls for the broadest unity of the people of South Africa,” President Cyril Ramaphosa said after a meeting of the ANC’s decision-making National Executive Committee east of Johannesburg on Thursday. “They expect us to find common ground, to overcome our differences and to act together for the good of everyone.”

DATA

EUROZONE DATA (MNI): Compensation Per Employee Accelerates Above ECB Forecasts in Q1

Eurozone Q1 compensation per employee was 5.1% Y/Y, above Q4's 4.7% and the ECB's forecast of 5.0%. The 5.0% Y/Y compensation per employee forecast noted above is taken from the latest Eurosystem projections. In yesterday's press conference, Lagarde noted that "If you look at compensation per employee based on what we can calculate on the basis of 15 countries, it was 4.7%." The 5.0% Y/Y figure is from Eurosystem (i.e National Central Bank) forecasts, while Lagarde likely quoted forecasts made by ECB staff. This may explain some portion of the discrepancy. There may also have been different cut-off dates/data used to compute the two forecasts.

EUROZONE Q1 GDP +0.3% Q/Q, +0.4% Y/Y (MNI)

GERMANY DATA (MNI): Manufacturing Stalls in April; Overall Q1 IP Weaker Than Thought

German industrial production came in short of expectations in April, printing -0.1% M/M (vs +0.2% cons; -0.4% unrevised prior). On a yearly comparison, industrial production continued to decline but at -3.9% Y/Y (vs -3.0% cons) this was less of a decline than the revised April print of -4.3% Y/Y (revised from -3.3%) amid base effects. Revisions driven by price index updates suggest that German industrial activity was weaker on the margin in Q1 than previously thought - with February's sequential growth further downwardly revised (by a further -0.5p to +1.2% M/M; the initial print was +2.1%).

CHINA DATA (MNI): China Exports Surge in May; Imports Slow

• CHINA MAY TRADE SURPLUS +$82.62 BLN VS APR +$72.35 BLN
• CHINA MAY EXPORTS +7.6% Y/Y VS MEDIAN +5.3% Y/Y
• CHINA MAY IMPORTS +1.8% Y/Y VS MEDIAN +4.6% Y/Y

MNI (Beijing) China's exports rose 7.6% y/y in May, beating the market consensus of a 5.3% y/y rise and far ahead of the 1.5% y/y growth seen in April, data released by Customs on Friday showed, with the increase driven mainly by recovering external demand. Imports increased 1.8% y/y during the month, lower than the market consensus for a 4.6% y/y pick up, slowing from last month's 8.4% y/y rise. The trade surplus over the first five months of 2024 was USD337.21 billion, with May contributing USD82.6 billion.

JAPAN DATA (MNI): BOJ Consumption Activity Index Rebounds in April

The Bank of Japan's Consumption Activity Index posted the first m/m rise in two months in April, up 0.5% following March's 1.0% fall and easing concern over the outlook for private consumption. Spending linked to services remained solid, while non-durable goods were weaker as households saved on the back of higher prices. The BOJ's Consumption Activity Index is designed to forecast revised private consumption, not act as a preliminary estimate. The Cabinet Office will release second preliminary GDP for Q1 on Monday. Private economists expected private consumption to fall 0.7% q/q, unchanged from first preliminary estimate.

JAPAN DATA (MNI): Household Spending Back in Positive Y/Y Territory

• JAPAN APRIL HOUSEHOLD SPENDING +0.5% Y/Y; MARCH -1.2%

Japan real household spending rose 0.5% y/y in April. This was in line with consensus expectations and against a -1.2% dip in March. This is the first y/y rise in household spending since February last year. The authorities/BoJ will be hoping this is the start of more positive real spending trends.

RATINGS: Potential Sovereign Updates This Week

Potential sovereign rating reviews of note scheduled for after hours on Friday include:

• Fitch on Cyprus (current rating: BBB; Outlook Positive) & Slovakia (current rating: A-; Outlook Stable)
• Moody’s on Norway (current rating: Aaa; Outlook Stable) & United Kingdom (current rating: Aa3; Outlook Stable)
• S&P on Malta (current rating: A-; Outlook Stable) & Slovenia (current rating: AA-; Outlook Stable)
• Morningstar DBRS on Estonia (current rating: AA (low), Stable Trend) & Slovenia (current rating: A (high), Stable Trend)
• Scope Ratings on Hungary (current rating: BBB; Outlook Stable)

FOREX: USDJPY Under Renewed Pressure as NFP Approaches

• Daily adjustments for G10 currencies on Friday are understandably small given the close proximity to the key US employment report for May. However, there was some renewed USDJPY weakness in early European trade, which saw the pair print as low as 155.12 from its overnight peak of 155.94.
• With US yields consolidating at the week’s lowest levels heading into the data, there are clear two-way risks for the Japanese Yen, which remains the most sensitive to key US releases.
• The pair sits around 0.15% lower and it’s important to note that the key support zone, between 154.76, the 50-day EMA, and 154.17, a trendline drawn from the Dec 28 low, remains in place. A clear break of this key zone would be bearish and highlight a stronger reversal.
• Elsewhere, reserves data revealed a flatlining in China's gold holdings in May, bringing an end to an 18-month run of buying from the Chinese authorities. This has prompted a sharp $30 move lower for the yellow metal, and in turn supported a modest pull higher for the greenback.
• This briefly saw the likes of EURUSD, GBPUSD and AUDUSD all pull to the lowest levels of the session, however, ranges remain much more narrow for these pairs.
• ECB commentary reiterating the board’s intended cautious approach following yesterday’s hike could leave EURUSD topside vulnerable to an in line or weak NFP print today. Above here, the week’s high of 1.0916 precedes the more significant Fibonacci retracement at 1.0933, before 1.0964/81, the March highs.
• In emerging markets, USDMXN extended a sharp rally from late Thursday, briefly trading above the 18.00 handle once more. Headlines surrounding discussions on potential constitutional reforms continue to spook investors following Sunday’s election results.
• All focus on US employment data to finish off the week, with Canadian jobs data also crossing.

EGBS: Strong Eurozone Q1 Wage Data Weighs on EGBs; NFP in Focus

Core/semi-core EGBs were pressured after Eurozone Q1 compensation per employee accelerated in Q1.

• The 5.1% Y/Y figure exceeded Eurosystem staff’s latest forecasts of 5.0% and Q4’s 4.7% reading. See the 'Data' section above for more colour.
• Prior to that release, Bund, OAT and BTP futures had traded in a tight range as markets await today’s US labour market data at 1330BST.
• ECB speakers have not been market moving, re-iterating yesterday’s guidance that the Bank is not pre-committing to a particular rate path.
• Bund futures are -27 at 130.71, though remain firmer this week. The latest recovery appears to be a correction for now, with bulls needing to breach 131.73, the 50-day EMA, to signal scope for a stronger recovery.
• German and French cash yields are 2 to 3bps higher, while 10-year peripheral spreads to Bunds are wider with European equities on the defensive.
• The aforementioned US labour market report remains today’s focus.
  

GILTS: Little Changed, NFP Eyed as Weekend Nears

Gilts hold to narrow ranges, with futures happy to trade within recent boundaries.

• The contract last prints -9 at 97.62.
• That leaves initial support and resistance in the form of Tuesday’s range extremes (97.08 & 97.86) untouched, with the recent bullish recovery in the contract deemed corrective at this juncture.
• Cash gilt yields are little changed to 1bp higher after failing to challenge May lows during the recent rally.
• SONIA futures are essentially unchanged through the blues.
• BoE-dated OIS shows 38bp of cuts through year end, also little changed on the day.
• The UK calendar is light to end the week, with Halifax house price data not market moving and already in the rear-view.
• Local focus on political matters ahead of the July 4 election provides little for gilts to trade off, with wider macro influences set to have more impact into the weekend.
• That leaves U.S. NFPs front and centre.
• A reminder that the S&P-KPMG-REC labour market report will hit in the early hours of Monday morning.
• Slightly further out, Tuesday will see the monthly run of labour market data cross, while Wednesday provides the monthly run of economic activity and GDP data.
• The BoE remains in its pre-election quiet period, with the only appearances of note in that window set to come via scheduled meetings e.g. the MPC decision on June 20.

EQUITIES: E-Mini S&P Trading Close to This Week's Highs

Recent weakness in Eurostoxx 50 futures appears to have been a correction. The recovery from 4947.00, the Jun 4 low, signals the end of the corrective cycle and attention is on key resistance and the bull trigger at 5110.00, the May 16 high. Clearance of this level would confirm a resumption of the uptrend. On the downside, a break of 4947.00 would instead expose 4894.90, a Fibonacci retracement. The uptrend in S&P E-Minis remains intact and this week’s gains reinforce this set-up. The contract has traded above 5368.25, the May 23 high and bull trigger. The move confirms a resumption of the uptrend. A continuation higher would signal scope for a climb towards the 5400.00 handle next. On the downside, key short-term support has been defined at 5205.50, the May 31 low. Clearance of this level is required to signal a short-term reversal.

• Japan's NIKKEI closed lower by 19.58 pts or -0.05% at 38683.93 and the TOPIX ended 2.2 pts lower or -0.08% at 2755.03.
• Elsewhere, in China the SHANGHAI closed higher by 2.485 pts or +0.08% at 3051.279 and the HANG SENG ended 109.85 pts lower or -0.59% at 18366.95.
• Across Europe, Germany's DAX trades lower by 94.53 pts or -0.51% at 18556.64, FTSE 100 lower by 28.06 pts or -0.34% at 8257.06, CAC 40 down 42.29 pts or -0.53% at 7996.91 and Euro Stoxx 50 down 12.25 pts or -0.24% at 5056.19.
• Dow Jones mini up 4 pts or +0.01% at 38959, S&P 500 mini up 3 pts or +0.06% at 5367, NASDAQ mini up 30.75 pts or +0.16% at 19090.

Time: 09:53 BST

COMMODITIES: Bearish Theme in WTI Futures Still in Play Despite Recent Recovery

Despite the latest recovery in WTI futures, a bearish theme remains in play. Price has recently cleared $73.24, the 76.4% retracement of the Dec 13 - Apr 12 bull leg. This reinforces the current bearish theme and signals scope for a continuation. Note that moving average studies are in a bear-mode position too, highlighting a downtrend. Sights are on $71.33 next, the Feb 5 low. Initial resistance is at $76.15, the May 24 low and a recent breakout level. A short-term bear cycle in Gold remains in play for now, despite that latest recovery. Note that the medium-term trend structure is bullish and the recent move down appears to be a correction that is allowing an overbought condition to unwind. Moving average studies are in a bull-mode position, highlighting an uptrend. Key resistance and the bull trigger is $2450.1,the May 20 high. The 50-day EMA, at $2314.4, represents a key support.

• WTI Crude down $0.21 or -0.28% at $75.31
• Natural Gas up $0.01 or +0.25% at $2.829
• Gold spot down $29.29 or -1.23% at $2345.29
• Copper down $8.9 or -1.9% at $458.7
• Silver down $0.59 or -1.89% at $30.693
• Platinum down $9.92 or -0.98% at $996.89

Time: 09:53 BST