Markets:
- Gold up $33 to $2323
- WTI crude oil up 14-cents to $86.73
- US 10-year yields up 8.1 bps to 4.39%
- S&P 500 up 57 points to 5204
- USD leads, CAD lags
As we wind down the day, the FX changes are small but that doesn’t tell the whole story.
The US dollar jumped 40-50 pips on the non-farm payrolls report as the data and details were roundly hot. The only thing that kept the unemployment rate in check was a rise in the participation rate. Wages would also have been hotter if not for some rounding and a revision to the prior.
Despite that, equity future held in positive territory and that was a sign of things to come. The quirk was that yesterday there was a rout in risk trades late in the day on Middle East war fears and that began to unwind. With that, the dollar eventually gave back all it’s NFP gains and equities roared.
There was no lack of Fedspeak and certainly tilted more hawkishly but the market is still in a data-dependent mood. June Fed probabilities have dwindled to close to 50% and there are 65 bps in cuts priced this year compared to 70 pre-data. Bonds were also beaten up late in something to watch for the week ahead, especially with CPI on deck.
Perhaps though, the market is looking abroad where government spending is lower and inflation is falling back to target (or lower). The Bank of Italy slashed its inflation forecasts today and Canadian employment was surprisingly weak. The US appears to be more of an outlier and that means that once fiscal stimulus dries up, so will the outperformance. In the short-term that should be a USD tailwind but eventually that will reverse as the bill is paid.
As for the loonie, it fell to the worst levels of the year before bouncing in the broad USD slump later and with the help of new highs for oil.