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Following yesterday’s subdued session that saw US equity indices ending the day broadly flat, US equity index futures are a little lower in pre-market trade this morning. In recent trade, E-mini S&P 500 futures have dropped under the 4180 mark to hit lowest levels since the start of last week, but that does not mean much given how unusually subdued the price-action has been over the past two weeks amid a lack of macro-catalysts. In other words, while US equities might be down more than 0.5% this morning and having slipped to short-term lows, traders would be wise not to read too much into these modest moves that remain well withing recent month’s ranges. If there is any catalyst behind today’s downside, it is most likely just position squaring ahead of tomorrow’s key US jobs data. Until then, expect trade to remain uninspired, though to be fair, ISM Services PMI survey data for the month of May might spice things up a little at 1500BST today. Looking at other pre-open US markets; US bond markets remain asleep, with the 10-year yield still hovering close to the 1.60% mark. Analysts have been arguing that yields at current levels suggest that bond market participants are buying into the Fed’s stance on inflation, i.e. that the current spike in prices being observed will be transitory and subside before long, with the US likely reverting back to the modestly deflationary conditions seen prior to the pandemic. If bond markets were worried about a more persistent overshoot of the Fed’s target, then yields would be drastically higher, the argument goes. As with equities, tomorrow’s US jobs data is the key upcoming macro catalyst, though again, ISM Services PMI could liven things up a little.
Turning now to commodity markets; crude oil prices are flat this morning, with both front-month WTI and Brent futures sliding back from overnight highs (and fresh cycle highs) at the respective $69.40 and $72.00 levels to trade at around $68.75 and $71.30. Prices were boosted going into the Asia Pac session by a bullish weekly Private API crude oil inventory report (crude stocks saw a 5.36M barrel draw, larger than expectations for a more modest 2.4M barrel draw). Otherwise, new catalysts over the past 24 hours have been few and far between, though crude oil markets remain well supported close to cycle highs amid ongoing optimism about the global demand recovery, sluggish progress in US/Iran nuclear talks and following this week’s show of unity from OPEC+ members as they agreed unanimously to stick the course with their gradual, pre-planned easing of output cuts. Turning to precious metals; gold continues to range either side of the $1900 level, and is this morning modestly below it around $1895, while spot silver continues to consolidate either side of $28.00 and is this morning around $27.80. The two metals, both of which are a tad lower today but still within recent ranges are feeling the weight of a slightly stronger US dollar this morning but remain underpinned by subdued bond market conditions. Some have cited an announcement by Russia’s National Wealth Fund that it is going to exit USD assets and will now invest 40% in euro denominated assets, 30% in CNY denominated assets and 20% in gold as a positive for the precious metal, though this news has not delivered a meaningful lift.
Turning now to FX markets; conditions are subdued in a similar manner to equity and bond markets as market participants tread water ahead of key upcoming US economic releases. The US dollar is a little higher this morning and the US Dollar Index (DXY) has managed to just about reclaim the 90.00 handle again, putting it bang in the middle of its recent 89.60-90.40 range of recent days. The 21DMA continues to cap the price action. A break above this level could by catalysed by a bullish outcome with regards to US data in the coming days; perhaps a big beat on expectations in tomorrow’s NFP data which could put pressure on the Fed to officially pivot towards tapering of its asset purchase programme. With the modestly higher DXY around 90.00, EURUSD is modestly lower (by about 0.1% on the day) and close to 1.2200, also putting it bang in the centre of recent 1.2150-1.2250ish ranges. CHF and JPY are both similarly subdued, down about 0.1% on the day versus the buck with USDCHF close to but just under 0.9000 and USDJPY still ranging between 109.50 and 110.00. Fundamental catalysts for the three currencies have been light.
GBP, meanwhile, is the best performing currency in the G10 this morning, up a modest just under 0.2% on the session versus the US dollar, which has not quite been enough to lift GBPUSD back above the 1.4200 level. As with other dollar majors, GBPUSD trades close to the centre of recent ranges (1.4100-1.4250ish ranges in this case). As with other currencies, fresh catalysts have been few and far between; there were some optimistic comments from the UK Chancellor on the country’s furlough scheme, saying that recent data shows the scheme is naturally winding down as people return to work. GBP may well continue to outperform other G10 peers as optimism about the country’s developed world leading economic recovery (powered by the fast vaccine rollout) is evidenced in the hard data for the month’s of April and May (set for release in the coming weeks). Finally in FX, commodity currencies are the worst performers in the G10 this morning; AUD, NOK, SEK and NZD are each down about 0.4% on the session versus the dollar but as with other pairs, mostly still trade within the confines of recent ranges. Aussie Retail Sales and Trade data for April was largely as expected and has not shifted the dial at all really for AUD, though slightly softer than expected Chinese PMIs overnight may be weighing a tad on the antipodes (China is the key export market for both).
The Day Ahead
US ADP National Employment data for the month of May (pretty much ADP’s estimate as to what the Friday NFP number will be) is up next at 1315BST. Analysts note it has tended to underestimate the actual NFP number in recent months. The usual US Weekly Jobless Claims data is then out at 1330BST, but the data collected outside of the week when the US Bureau of Labour Statistics collated the data for the official labour market report, so ought not have a huge impact on macro sentiment as it will not alter expectations for tomorrow’s jobs data. Markets will want to see a continuation of the recent trend of falling Initial Jobless Claims, however. The most important US data of the day is then out at 1500BST, with ISM releasing their Services PMI survey for the month of May. Crude oil traders will be watching official weekly inventory data at 1530BST, and bond traders will be on the lookout for an announcement from the US treasury as to the total value of the bonds its will be selling at the upcoming 3, 10 and 30-year auctions. Finally, a few Fed speakers are up between 1730BST and 2005BST, getting there last few words in before the Fed goes into blackout at the end of the week ahead of the upcoming June meeting.
