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This Friday’s US monthly jobs report will be vital to extend the DXY’s uptrend in the upper half of this year’s 101-106 range. Interest rate futures priced in a 69% chance for a 25 bps hike to 5.25-5.5% at the FOMC meeting on 14 June. Bloomberg consensus expects US nonfarm payrolls to slip below 200k to 173k in May from 230k in April, sees the unemployment rate rising to 3.5% from 3.4%, and average hourly earnings unchanged at 4.4%. Last Friday, the PCE deflator rose by a faster rate of 0.4% MoM (4.4% YoY) in April from 0.1% MoM (4.2% YoY) in March. Core PCE deflator was also stronger at 0.4% MoM (4.7% YoY) vs 0.3% MoM (4.6% YoY) in March. On 31 May, Richmond Fed President Thomas Barkin should reaffirm that the US labour market has not cooled enough for the Fed to close the door for more hikes to return inflation to its 2% target.
With a US debt default considered extremely negative for the US economy, the Fed will need Congress to pass the weekend’s “in principle” agreement between the White House and the Republicans to raise the USD31.4 trillion federal debt ceiling. So, pay attention to the vote in the US House of Representatives on 31 May for progress to avert a US debt default on 5 June, the new X-date by US Treasury Secretary Yellen.
EUR depreciated a third week by 0.8% to a two-month low of 1.0723, into the lower half of this year’s 1.05-1.11 range. Germany revised 1Q23 GDP growth to -0.3% QoQ sa (-0.2% YoY nsa) 1Q23 from its preliminary 0% growth (0.2% YoY nsa) a month earlier and sent Eurozone’s largest economy into a technical recession. With the country’s ZEW Sentiment Index plunging to -10.7 in May from 4.1 in April and an average of 19.3 in 1Q23, the German government probably regretted last month’s decision to upgrade this year’s growth forecast to 0.4% from 0.2%. On 31 May, consensus expects Germany’s CPI inflation to slow to a preliminary 0.2% MoM (6.4% YoY) in May from 0.4% MoM (7.2% YoY) in April, and a day later, Eurozone’s CPI inflation declining to a preliminary 0.2% MoM (6.3% YoY) in May from 0.6% MoM (7% YoY). This week, European Central Bank officials will likely maintain the narrative for the hiking cycle to peak after two more rate increases in June-July.
GBP depreciated by 0.8% to 1.2344 a third week, back inside the first quarter’s 1.18-1.2450 range. Although the IMF stopped predicting a UK recession, the economy could still stumble into one. CPI inflation finally declined to 8.7% YoY in April after seven months of double-digit readings, allowing the Bank of England to join the Fed in downsizing hikes to “normal” 25 bps in March and May. Unfortunately, inflation is still well above the 2% target, made worse by core inflation hitting a 31-year high of 6.8% in April. With food prices at 41-year highs, the Tory government plans to cap basic food prices at supermarkets. Chancellor of the Exchequer Jeremy Hunt supported more hikes to lower inflation even at the expense of a recession. However, higher borrowing costs add to the government’s debt interest bill and consumers’ mortgage payments. In late May, an Ipsos poll showed 2 in 3 Britons expecting the opposition Labour Party to win the most seats at the general elections due in January 2025. We cannot rule out Prime Minister Rishi Sunak facing Tory rebellion like his predecessors.
Quote of the day
“The agreement represents a compromise, which means not everyone gets what they want. That’s the responsibility of governing.”
US President Joe Biden on 28 May 2023
29 May in history
Edmund Hillary and Sherpa Tenzing Norgay became the first climbers to reach the summit of Mount Everest in 1953.
Topic
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