Solid NFP figure makes rate cut this week unlikely

The US reported a net gain of 177,000 jobs in April according to the nonfarm payrolls report released on Friday, solidly above the predicted 138,000 as the labour market remains in good shape. The two previous months were revised lower, with the March figure shifted down to 185,000, from 228,000 previously. There were strong gains in jobs in healthcare and warehousing, likely explained by the surge in imports ahead of the tariffs introduced on April 2. Meanwhile the unemployment rate was unchanged at 4.2%. The latest labour market data is unlikely to push the Fed towards hastening its rate-cutting, especially with the impact of tariffs on inflation still unclear. President Trump said in an interview over the weekend that he had no plans to fire Fed chair Jerome Powell though he continues to urge rate cuts. President Trump also said that he would lower tariffs on Chinese imports ‘at some point.’

Headline CPI inflation in the Eurozone stayed pat at 2.2% y/y in April, just above the consensus prediction of 2.1%. Prices were 0.6% higher than in March. The core measure accelerated to 2.7%, up from 2.4% previously and topping the predicted 2.5%. The diverging performance can be explained largely by lower petrol prices as global oil prices have slumped on the back of concerns around the effect US tariffs will have on global economic growth. Services were a particular upside surprise as they were up 3.9% y/y, a sharp acceleration on the 3.5% recorded in March. Meanwhile, unemployment in the single currency bloc in March was at 6.2%, unchanged from the February level as it was revised up from 6.1% on the initial reading.

Today’s Economic Data and Events

11:00 Turkey CPI inflation, % y/y, April. Forecast: 38.0%

18:00 US ISM services index, April. Forecast: 50.2

Fixed Income

• USTs sold off on Friday following the NFP report that made imminent rate-cutting from the Fed less likely. Yields on the 2yr ended the day 13bps higher at 3.8239% while the 10yr closed up 9bps at 4.3083%.
• Major central bank meetings this week include the US Fed, which is expected to keep the Fed funds rate on hold with the upper bound at 4.5%, and the Bank of England, where a 25bps cut to 4.25% is predicted.

FX

• The dollar strengthened w/w, with the dollar index up 0.6%, the second weekly gain. GBP closed down 0.3% w/w at 1.3272 while EUR ended the week down 0.6% at 1.1297. JPY was down 0.9% to 144.95.

Equities

• Some positive noise around potential trade talks between China and the US, combined with some broadly positive earnings results, saw most major equity indices end the week in the green. In Asia, the Shanghai Composite ended the week down 0.5% following a 0.2% drop on Friday, but there was more positivity elsewhere on the continent as the Hang Seng added 2.4% on the week while the Nikkei ended 5.2% higher.
• In Europe, the composite STOXX 600 ended the week up 3.1% after logging its eighth straight day of gains. The DAX closed up 4.6% w/w.
• Following the robust NFP report, the S&P 500 closed up 1.5% on the day, marking the ninth straight day of gains for the index. It closed up 2.9% w/w but remains down 3.3% since the start of the year. The Dow Jones added 3.0% on the week while the NASDAQ closed up 3.4% w/w.

Commodities

• Both benchmarks closed down sharply over the week, with Brent futures ending Friday down 8.3% w/w at USD 61.3/b, while WTI dropped 7.5% to USD 58.3/b. Signals from Saudi Arabia that it was willing and able to withstand lower oil prices for an extended period added to existing concerns around demand growth amidst the global trade disruption.
• The OPEC+ meeting that was scheduled to happen today was brought forward to Saturday, with the group deciding to bring back a further 411,000 bbl to the market in June, just like they had last month. Warnings from Saudi Arabia about unity within the group will likely prompt further downward pressure on prices.