May’s last day, Nonfarm payrolls due
May’s last day, Mexico
trade standoff, US jobs, Yuan looks to 7
And so, the time has come
for Theresa May to shuffle off. Except she won’t quite as she will remain on as
a caretaker PM. Boris Johnson is frontrunner. If he gets in – and we’ve
detailed why we think he will – it could be a troublesome one for the pound. Votes start next week and we should be down to the final two before
June is over.
Trade v Fed
US equities continue to
march higher as the Fed story is all that matters – investors are still
guzzling that Kool-Aid. The Dow added 180 points, leaving it up over 1100
points from the low hit this week. SPX rose 0.61% to 2,843. Looking first
for 2870 and then 2889 for bulls. Support around 2817 and 2800.
European equities were
softer as the ECB was not dovish as expected. Mixed bag in Asia overnight –
Nikkei and ASX higher, Kospi down, India flat, China weaker.
Futures show European
markets on the front foot, bouncing back modestly from Thursday’s dip.
EURUSD failed to break out
any further after the ECB meeting. After pushing up to 1.13 it’s found well-trodden
turf at 1.1260 for comfort. At send time sterling was steady at 1.27
against the dollar.
Oil has bounced after
looking a bit oversold. Brent testing resistance around $62.50, the 50%
retracement of the Dec-thru-Apr rally.
Some progress on the
Mexican-American talks over tariffs. VP Pence said he was ‘encouraged’ by the discussions as Mexico offered to deploy 6,000 members of its new
National Guard police force, but has reiterated that the 5% tariffs are still
slated for Monday.
Fed jawboning continues but
with a slightly different tone. NY Fed John Williams was more hawkish – or
at least one feels more representative of the Fed’s unwillingness to flip-flop
into a rate cut. His base case is for the US to grow above trend at 2.25%-2.5%.
His baseline is a ‘very good one’. Not language suggestive of a cut, albeit he
acknowledged risks to the downside.
USDCNH rallied, with the
yuan weakening amid concerns the PBOC is not worried about devaluation.
Bloomberg reports PBOC governor Yi Gang said he wasn’t worried about the seven
level being breached. Given the tensions over trade, devaluation in the CNH
would risk escalation as it would be perceived with suspicion in Washington.
USDCNH was last at 6.941, threatening to break out above last October’s highs
around 6.97. Gang is right that no one level is particularly more important
than the next, but the 7 handle on
USDCNH holds a very real psychological hold over the market. If that goes we would expect Trump to counter-attack.
Markets are still
digesting the impact of the ECB’s forward guidance change yesterday. The
pressure to launch a new round of QE will only build. I see the market testing
the ECB on this and driving it towards opening its toolkit again. EURUSD gains
seen capped, whilst the relative quality of the dollar versus a world of ugly
sisters should underpin the buck.
Nonfarm payrolls are the
headline risk event. The ADP print earlier in the week could herald a bad-un,
but we’re still looking for something in the region of 180k, in line with the
long-term trend. We should recall that the 27k print for the ADP number came
after a whopper the month before of 271k – look for the 3-month average. Jobs
growth remains solid, but this month’s print could be a tad light. Look for
100k maybe. The super tight labour market may well see hirings start to
decline a touch anyway. Unemployment is seen at 3.6%.
It’s far too easy to read
way too much into a single jobs number. Remember the 20k print for Feb was
followed by prints of 196k and 263k in the following two months – and had
preceded by Jan and Feb printing above 300k.
The wage data is probably
more important as far as Fed expectations as it matters for inflation. Average
hourly earnings are forecast to increase 0.3%. Traders likely to remain
cautious ahead of the nonfarm payrolls.
Ferrexpo – welcome
bit of good news after auditor strife and corporate governance concerns – sees
material improvement in earnings – group EBITDA in 1H 2019 is expected to
increase materially compared with 1H 2018. Improvement driven by higher
pricing, production and sales volumes, while cost inflation lower than expected
due to a fall in oil prices and the European gas price, which has partially
offset by an appreciation of the Ukrainian Hryvnia versus the US dollar.
Banks – the FCA is coming
down very hard on overdraft fee charging, but stops short of ending free banking.
Beyond Meat – last night
Beyond Meat reported much better than expected Q1 results. The stock market
darling shows no signs of falling out of love – shares popped 25% at one stage
in after-hours trading and were last up 18% – close to 5 times above its $25
IPO price at $117.49. Losses rose to $6.6m but revenues tripled to more than
$40m. Massive growth opportunity but the multiples are crazy and
competitors are coming – you’re entering a space that is really ripe for the
FMCG giants to take over.