Beijing reopening dulls non-farm retreat

US nonfarm payrolls beats expectations

Wall Street had another schizophrenic day on Friday as May US Non-Farm Payrolls outperformed, rising by 390,000 jobs, slightly less than April’s number, but well above market forecasts of 325,000. That sparked yet another tail-chasing reversal across asset classes as US markets continue to desperately search for “peak-hiking” from the Fed and return to their buy-everything happy space, an illness caused by endless rounds of quantitative easing and ultra-low rates by the world’s central banks over the past 15 years, as they themselves, tried to rewrite the laws of nature.

Equities markets tumbled, the US dollar rallied, bond yields edged higher, and precious metals fell on Friday. Meanwhile, energy markets continued reacting to a disappointing OPEC+ meeting on the production front, Brent crude and WTI both closing just above USD 120.00 a barrel. We can expect more of the same behaviour from US markets this week, tiring and asinine as it may be. US markets will have a second bite of the cherry this Friday when Inflation and Core Inflation for May are released. YoY Inflation is currently expected to be unchanged at 8.30%, with Core Inflation expected to ease slightly to 5.90%. As per Friday’s note, we can once again expect a binary outcome as we head into next week’s FOMC policy decision. ​ An “on forecast” to lower number equals buys everything, sell US dollars, higher equals sell everything buy US dollars. It’s pretty hard to guess what the FOMO gnomes of Wall Street will do until Friday, but I’m pretty sure volatility will, once again, be the winner.

Asia is having an altogether more orderly start to the week thankfully. China has announced a further easing of curbs in Beijing over the weekend, which is seeing some Asian equity markets, and US futures, trading in positive territory. Other glimmers of relief are that officials in Washington D.C. are considering a selective removal of tariffs on Chinese imports to aid the inflation fight. In the energy space, Reuters is reporting that Washington DC is allowing Spain’s Repsol, and Italy’s ENI, to resume debt-for-oil shipments with Venezuela. Libya announced its largest oil field had finally restarted operations. Oil has shrugged those headlines off in Asia, holding steady on weekend news that Saudi Arabia had hiked oil export prices to Asia and Europe, and with China reopening hopes suggesting higher oil demand.

Asia’s data calendar is quiet today. Australian ANZ Job Advertisements for May rebounded to a 0.40% gain MoM, after dropping 2.0% in April. More importantly, China’s Caixin Services PMI for May rose to 41.4 from April’s shocking 37.2 print. 41.4 is nothing to write home about either, but investors will take heart that some sort of rebound has taken place even as restrictions remained in place in Shanghai and Beijing, and that as they ease in both cities, the rebound will accelerate. That seems to be another tailwind for China equities today.

Holidays will impact markets today with South Korea, New Zealand, and Malaysia away today. Much of Europe is also closed including Germany, France, the Netherlands, and the Nordic region. UK markets return from a four-day break, with the UK media reporting that Prime Minister Boris Johnson could face a vote of no confidence and a leadership challenge this week. I’m not sure if BoJo’s demise would be bullish or bearish for the sterling or UK equities, I guess it depends on your point of view.

The data calendar is also very quiet in America this afternoon with the most heavyweight data releases back-ended later in the week including US CPI and the Bank of Canada policy decision. Tomorrow, we have a Reserve Bank of Australia policy decision, with the Reserve Bank of India on Wednesday. With all three, a rate hike is a certainty, the main question being by how much and whether slowdown fears cause them to blink on aggressiveness.

The next 24 hours in global markets, therefore, are likely to be driven by headlines and intraday swings in sentiment. A case in point being the Bank of Japan’s Kuroda reiterating today that there would be no tightening of monetary policy, which has lifted Japanese equities at the periphery while maintaining upward pressure on USD/JPY.

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