Citi
European open
Post European close, a bounce in equities in the US session caused USD to retrace lower and erase most of Wednesday’s gains. With several countries on holiday today, and the NFP looming, markets have reverted to being fairly muted in Asia. USTs saw several block trades again today, while oil prices remained steady after yesterday’s move higher. CNH spiked higher early in Asia as technical levels gave way amidst low liquidity. KRW opened higher, tracking yesterday’s moves overnight. KRW’s CPI print exceeded consensus, but markets had been expecting high inflation prints, and hence markets were little affected.
Looking ahead, NFP will remain the highlight of the day, although the US also sees ISM services index and Fedspeak from Brainard. EUR sees a set of economic data, while CAD receives labor productivity prints. TRY will eye a CPI, while BRL receives IP figures. We flag that liquidity may be low in this session with GBP, CNY, HKD, TWD & THB observing holidays.
US & the big payrolls
USD looks for payrolls data today, with markets calm ahead of it. Change in Nonfarm Payrolls at 13:30 BST for May. Citi Economics provides their NFP Preview – Will labor demand or supply slow job growth first? They expect 315k jobs added in May and notes that other elements of the report, including the unemployment rate falling to 3.4% and average hourly earnings rising 0.5%MoM, should affirm that slower job growth is a result of constrained supply of workers as opposed to softer labor demand.
– CitiFX Strategy asks if the payroll can stop equities – They believe an overshoot for both wages and jobs would likely weigh on equities, similar to how markets reacted to US ISM Mfg earlier this week. In that scenario, we would expect the USD to strengthen, even though Dollar performance on the day given AHE surprises has been mixed since 2021.
Ahead, we will also look to ISM Services Index at 15:00 BST for May. Citi Economics expect the index to decline to 56.4 in May. This would be a still-solid level of the index and would be consistent with recent months showing a stabilization in services ISM around pre-pandemic levels. We will also see Fed Vice Chair Brainard Discusses Community Reinvestment Act at 15:30 BST.
What happened in markets?
Equities: S&P 500 closed +1.8% at 4176 and Nasdaq Composite was +2.7% at 12320. S&P eminis traded above 4150 and is approaching the next notable resistance level at 4202. CitiFX Technicals says that a break there could suggest an extension to the double bottom target at 4303 (May 2022 high). The Asian session equities maintained gains - Nikkei was up 1.13%, while Kospi and US futures were relatively flat.
Oil – a recap
Oil prices soared towards the end of the European session yesterday, despite the OPEC+ decision to raise production targets by 648,000 bpd for July and August. The OPEC+ producers ability to fully match the 648,000 bpd increase in production targets for July and August was doubted however, and concerns of the market being left with limited supply ultimately resulted in the price increase.
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