In focus today
Today’s main data event will be the US May Jobs Report. We expect nonfarm payrolls to have grown by 190k, a modest uptick from April when weak public sector jobs growth weighed on the headline figure. Average hourly earnings growth likely remained steady at 0.2% m/m and we think unemployment rate will also remain unchanged at 3.9%. Fed’s Cook will be on the wire today.
In the euro area, we receive the important wage growth data for Q1 measured as compensation per employee in the final national accounts. Wages rose 4.6% y/y in the final quarter of last year and recent data suggests that wage growth increased in the first quarter of this year. We also look out for the German industrial production data for May, which has rebounded slightly in the past months. We also have a string of ECB speakers on the wires with Simkus, Nagel, Schnabel, Holzmann, Centeno and Lagarde all set to speak.
Economic and market news
What happened overnight
In China, exports rose more than expected by 7.6% y/y in May (cons: 6.0%, prior: 1.5%). An increase in the annual growth rate was somewhat expected as base effects turned more positive in May. However, the higher-than-expected release is a strengthening signal for the Chinese economy.
What happened yesterday
In the euro area, the ECB decided to cut its three main policy rates by 25bp, which leaves the key policy rate at 3.75%. This cut follows a 9-month period with unchanged policy rates on the back of the rapid hiking cycle since mid-2022. The rate cut was widely expected and thus focus was on the communication. The updated staff projections showed inflation to hit 2% one quarter later (Q4 25) than at the time of the March meeting. With the rate cut fully anticipated, some initial volatility was quickly replaced with markets trading in a tight range, with no commitment on the timing of the next policy rate cut. We continue to look for the next policy rate cut in December in our baseline scenario, although we do not rule out a potential rate cut in September, see Flash: ECB Review – Cutting and keeping, 6 June.
Euro area retail sales fell more than expected by 0.5% m/m in April (cons: -0.3%, prior: 0.8%). Consumers are still cautious with spending despite high employment and rising real incomes. Given the also high savings there is a possibility that growth could be better than expected this year from higher private consumption, but so far, we still see muted spending.
In the US, initial jobless claims increased to 229k (cons: 220k, prior: 221k), showing some signs of the US labour market cooling, even though the claims are still at a low level in a historical context. We saw some USD weakening after the news, with EUR/USD raising from 1.086 to 1.089 after the release.
In Denmark, Nationalbanken cut its key policy rate by 25bp to 3.35%, matching the move by ECB. EUR/DKK trades close to the central rate, which means future rate reductions, will depend on the decisions of the ECB. We expect a 25bp rate cut from the ECB and Nationalbanken in December.
Market movements
Equities: Global equities were mixed yesterday, with an unusual combination of sector and regional rotations. While US indices experienced a downturn, the rest of the world’s markets rose. Industrials and utilities underperformed simultaneously, while consumer discretionary and healthcare sectors saw a joint outperformance. The hawkish ECB cut was as sexpected and did not significantly impact the market’s direction. In the US yesterday, the Dow increased by 0.2%, while the S&P 500 decreased by 0.02%, the Nasdaq dropped by 0.1%, and the Russell 2000 fell by 0.7%. Asian markets are mixed this morning, with South Korea notably outperforming. Futures in Europe and the US are marginally higher.
FI: Global yields grinded marginally higher through yesterda’’s trading session and the sell-off was largely unaffected by the ECB meeting. The 25bp rate cut was widely expected and with no guidance for the timing or pace of policy rate cuts, the 5y point suffered 1bp more relative to the short end and the long end, on a relatively upbeat growth assessment. 10y Bunds ended 4bp higher on the day at 2.55%.
FX: Overall, only modest reactions in FX space after the ECB cut rates yesterday. The cut was widely anticipated and was followed by small upticks in G10 EUR crosses. But instead of a follow-through they either held on to gains or bounced back down again after the press conference. This morning, ahead of toda’’s NFP key potential market mover, EUR/USD remains in the upper end of the 1.08-1.09 range, EUR/NOK is back at 11.50, EUR/SEK trades just north of 11.30 and EUR/DKK hovers just above 7.46.