North American News
Dow Industrial Average leads the way with a 2.12% gain on the day
- Major indices all close higher
It was time for the laggard indices to take control today. Both the Dow industrial average and the Russell 2000 of small-cap stocks outperformed the NASDAQ which is been the big outperformer in 2023.
The final numbers for the day are showing:
- Dow industrial average rose 797 points or 2.12% at 33762.59. That was the strongest percentage gain since January 6 when that index rose 2.13%
- S&P index rose 61.34 points or 1.45% at 4282.35.The S&P is closing the 2nd week in a row above its 100-week moving average (at 4199.50).The gain today was the largest sense May 5.Bullish.
- NASDAQ index rose 139.77 points or 1.07% at 13240.76. The low price this week in the NASDAQ stalled right against its 100-week moving average at 12889.20. The high price and close extended above the fit percent midpoint of the move down from the all-time high in 2022 at 13150.53.Bullish.
- Russell 2000 index of small-cap stocks surged 62.96 points or 3.56% to 1830.905.That gain was the largest since November 10, 2022 when the index soared by 6.108%
Year to date, the Russell 2000 and Dow Industrial Average have lagged the other broader and tech heavy indices. For the 2023 trading year
- Dow Jones industrial average is up 1.86%
- S&P index is up 11.54%
- NASDAQ index is up 26.51%
- Russell 2000 is up 3.95%
For the trading week, the snapshot shows:
- Dow Jones industrial average up 2.02%
- S&P index up 1.83%
- Nasdaq up 2.04% and up for the 6th consecutive week.
- Russell 2000 up 3.26%
US May non-farm payrolls +339K vs +190K expected
- May 2023 US employment data from the non-farm payrolls report
- Prior was +253K (revised to +294K)
- Two-month net revision +93K vs -149K prior
- Unemployment rate 3.7% vs 3.5% expected
- Prior unemployment rate 3.4%
- Participation rate 62.6% vs 62.6% prior
- U6 underemployment rate 6.7% vs 6.6% prior
- Average hourly earnings +0.3% m/m vs +0.3% expected
- Average hourly earnings +4.3% y/y vs +4.4% expected
- Average weekly hours 34.3 vs 34.4 expected
- Change in private payrolls +283K vs +165K expected
- Change in manufacturing payrolls -2K vs +6K expected
- Household survey -310K vs +139K prior
- Birth-death adjustment +231K vs +378K prior
Some weakness under the surface of US jobs report but Fed on pace for July hike – CIBC
- CIBC has a look at the US jobs report
CIBC noted that the household survey tends to be more volatile and less reliable month-to-month and the 310K drop in jobs was a stark contrast to the establishment survey at +339K. However, year-to-date comparisons suggest the household survey has added 1.9 million jobs compared to 1.6 million in the payroll report, indicating the May report could be a correction for previous over-reporting. The total participation rate remained constant, while the prime-age (25-54 years) participation rate exceeded its pre-pandemic peak. They say the latter trend may persist as Americans with depleted savings and affected by inflation might be prompted to seek income.
The upside surprise in hiring was in line with increase in job openings seen leading up to the reference period of this survey. Although there was some weakness beneath the surface of the report, the tone of recent data suggests that the US was still on pace for something close to 2% growth in Q2, yet another quarter in which we’ve put off the necessary pain to get inflation down all the way to 2%. The ambiguity in today’s data should be sufficient to have the Fed opt to keep rates on hold in June, but we now see them nudging rates up a final time in July. We’re near the end of a long rate hike cycle, so each hike is now a separate decision that will rest on the incoming data, and a Q3 slowdown is necessary to still make July an isolated final move rather than part of a sequence.
In a separate note, BMO highlighted that any time the unemployment rate rises 0.3 percentage points from the low, it tends to rise a further 1.5-3.0 percentage points.
Commodities
Gold hits an air-pocket in $20 drop
- Gold falls to $1960 from $1980 after non-farm payrolls
Gold took a tumble in the past 15 minutes as it extends its post-payrolls slump. It’s not entirely clear what’s behind the selling with Fed funds futures pricing for the June meeting stuck at 29% pre-and-post NFP. The dollar is also broadly flat and commodities are generally higher.
Baker Hughes oil rig counts fall -15 to 555 in the current week
- The weekly Baker Hughes rig count
- Oil rigs -15 to 555
- Gas rigs unchanged at 137
- Total rigs -15 to 696
The levels of rigs have continued to trend lower. Looking back toward the beginning of the year, the rig count on January 13 showed:
- Oil rigs: 623. Down 68
- Gas rigs: 150. Down 13
- Total rigs: 775
Iraq oil minister: We will not hesitate to take any decision to create more balance
- I’m not sure that tells is too much
The OPEC meeting is this weekend and most as expect no change but it’s certainly not set in stone, as OPEC surprised at the start of April and prices are lower then they’d like.
- We will not hesitate to take any decision to create more balance in the market
- OPEC+ wants to maintain stability in the oil market
- We will take decisions that serve oil consumers, producers and investors
- Negotiating with Turkey on the restart of exports from the KRG
OPEC+ is considering an additional output cut of around 1 mbpd – report
- 1 mbpd cut is ‘among possible options’
It will be an interesting weekend in Vienna as Reuters now reports that the additional cut would be 1 million barrels per day. None of this is a huge surprise and the timing of the leaks before the weekend appears designed to put a squeeze on shorts but that squeeze will reverse on Monday if they don’t follow through.
EU News
European stock surge for the second day
- Closing changes for the main European bourses
- Stoxx 600 +1.5%
- UK FTSE 100 +1.6%
- German DAX +1.3%
- French CAC +2.0%
- Italy MIB +2.0%
- Spain IBEX +1.7%
On the week:
- Stoxx 600 +0.2%
- UK FTSE 100 -0.2%
- German DAX +0.5%
- French CAC -0.6%
- Italy MIB +1.3%
- Spain IBEX +1.4%
ECB’s Panetta: We must not be too quick to raise interest rates
- Further remarks by Panetta on the day
- We haven’t reached our final destination yet
- But we are not far from it
- Debate will soon shift from level of interest rates to that of maintaining them over time
- We need to curb inflation without having too negative an impact on the economy
ECB’s Makhlouf: Beyond probable rate hikes in June and July, picture is a lot less clear
- Remarks by ECB policymaker, Gabriel Makhlouf
- Likely to see another rate hike at the next meeting
- Inflation fall is very welcome but not definitive
- Underlying pressures are still quite strong
SNB’s Schlegel: Cannot rule out further monetary policy tightening
- Remarks by SNB vice chairman, Martin Schlegel
- SNB ready to be active in forex markets to ensure appropriate monetary conditions
- Inflationary pressure is broadening
- Cannot sound the all clear on inflation despite recent dips in the data
Other News
Fitch says will resolve US negative ratings watch in Q3
- Fitch maintains the ratings watch negative on the US rating
Fitch is out with something of an ominous warning on the US credit rating.
Fitch Ratings affirmed that the United States’ ‘AAA’ credit rating will remain on a Rating Watch Negative despite the resolution of the debt limit impasse.It was placed on ratings watch on May 24 in a move that prompted some US lawmakers to grow more flexible.
Fitch says it will consider the implications of the recent political brinkmanship and assesses the country’s medium-term fiscal and debt trajectories with a decision coming in Q3.
President Biden is expected to sign a bill to suspend the U.S. debt limit until January 2025 today. The agreement, which matches Fitch’s expectations, features austerity measures, including caps on non-military discretionary spending, that will save an estimated $1.5 trillion over the next decade, according to the Congressional Budget Office.
Despite the positive development, Fitch expressed concern about ongoing political standoffs around the debt limit, which lower confidence in US governance on fiscal and debt matters. On the positive side, they note that the U.S. rating is supported by factors such as the size of the economy, high GDP per capita, and the US dollar’s status as the world’s dominant reserve currency. They say factors such as the credibility of policymaking and projected medium-term fiscal and debt trajectories will play a significant role in their decision.
China reportedly working on a host of new measures to bolster property market
- Bloomberg reports, citing sources familiar with the matter
This comes as the economy continues to stutter from the post-Covid recovery and the rebound in the property market has been rather subdued at best. Of note, regulators are reportedly considering reducing the down payment in some non-core neighbourhoods of major cities, lowering agent commissions on transactions, and further relaxing restrictions for residential purchases under the guidance of the State Council.
The plans are still subject to change but it is clear that there would need to be more stimulus measures being pushed by Beijing to try and bolster economic conditions in general.
Timiraos: Non-farm payrolls won’t resolve Fed rate scenarios
- The latest from the WSJ Fedwatcher
The latest from Fedwatcher Nick Timiraos has been published at the Wall Street Journal.
Friday’s jobs report does little to clarify the Federal Reserve’s debate over whether to hold rates steady this month. But it underscores the prospect that, if officials do so, they could favor raising rates later this summer.
Cryptocurrency News
Bitcoin price struggles after hot US NFP data
- The US economy added 339,000 jobs in May, beating market expectations of 190,000.
- May US NFP data release signals a hot job market, with experts saying it is consistent with a soft landing for the economy.
- Annual wage growth has slowed, pointing at cooling inflation pressures and thus less likelihood of a rate hike.
Bitcoin price experienced a pullback after a mixed US NonFarm Payrolls report for May. While typically a hot job creation print doesn’t bode well for Bitcoin in the short term, slowing wage growth could make a difference and signal a recovery ahead.
Similar to the situation in April, the number of jobs added far exceeded market expectations, but a slowdown in annual wage growth feeds a bearish thesis for the US Dollar index as it points to cooling inflation pressures. This could benefit risk assets like Bitcoin, which saw in May its first monthly loss of 2023.
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