US LABOR MARKET: MNI US Employment Insight: Good Enough To Keep The Fed Patient
Jun-06 16:56
- We have published and e-mailed to subscribers the MNI US Employment Insight.
- Please find the full report including MNI analysis here.
- Nonfarm payrolls growth modestly beat expectations in May with 139k (cons 126k) although it was more than offset by large two-month downward revisions of -95k.
- It leaves a three-month average of 135k, solid considering a slide in immigration. Long-term breakeven pace is assumed around the 100k mark.
- Note the large downward revisions in transportation & warehousing: the previous data had suggested that this sector was being buoyed by the strong inventory build seen in Q1 on tariff front-running, but the latest vintage points to a recent net negative impact from tariffs.
- The main standout statistic from May's Household Survey is the tick up in the unemployment rate to 4.244% from 4.187%, which while keeping the rate at 4.2% in line with consensus was the highest unrounded unemployment rate since October 2021.
- This suggested that upward pressure on the rate continued in more or less the steady but not rapid pace of deterioration envisaged by the Fed, and in a mixed Household report, most statistics underlying pointed to steady weakening in the labor market.
- There was a sizeable beat for AHE growth (0.4% M/M vs 0.3% expected), considering the average work week was as expected at 34.3.
- The lack of a sharper deterioration in the payrolls report saw a large hawkish reaction as it reversed the dovish build-up into the release that started with last week’s jobless claims increase and continued with Wednesday’s ADP employment and ISM services misses.
- It leaves a path back closer to recent hawkish extremes, with a next cut fully priced for October and 45bp of cuts to year-end. Out of interest, that was 79bp after last month’s NFP report.
- At least one analyst (Citi) pushed back their expectation of the next Fed cut (to September, from July).
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STIR: Just 7.5bp Of Cuts Priced For June FOMC Prior Today's Decision
May-07 16:47
- Fed Funds implied rates are at the high end of the week’s range for the next few meetings heading towards today’s FOMC decision, whilst meetings nearer year-end are more within range.
- We don’t anticipate any meaningful changes in the statement, though any signal that the Fed is looking seriously at “soft” survey data to assess the outlook could be significant. MNI Fed Preview here.
- Cumulative cuts from 4.33% effective: 0.5bp for today, 7.5bp Jun, 23bp Jul, 42bp Sep and 77bp Dec.
- The 42bp of cuts priced with the Sept meeting is close to pricing for July prior to Thursday’s ISM manufacturing report, to highlight the recent hawkish re-adjustment.
- SOFR futures point to an implied terminal yield of 3.15%, where it was at the NY crossover first thing. It has nudged out to SFRZ6 after months in the U6 (although recently with a few days with both U6 and Z6 yields equal). It’s technically the furthest out for the terminal since fleetingly on Feb 26 and before that mid-Dec prior to the Fed’s hawkish pivot.
US TSY FUTURES: BLOCK: Jun'25 2Y/10Y Ultra-Bond Flattener
May-07 16:29
More curve crosses: latest 2s/10Y ultra posted at 1220:50ET, DV01 $307,000:
- -8,333 TUM5 103-21.62, post time offer vs.
- +3,500 UXYM5 113-23.5, buy through 113-23 post time offer
BONDS: EGB-GILTS CASH CLOSE: Curves Bull Flatten Ahead Of BOE Tomorrow
May-07 16:22
The German and UK cash curves bull flattened Wednesday, with Bunds lightly outperforming Gilts.
- There was no obvious headline trigger for the bid that began mid-morning, but strength extended through the session as equities and oil/gas benchmarks moved away from highs.
- 10-year Bund yields ended the session down 6.5bps to 2.47%, with Gilts down 5.4bps to 4.46%.
- The space largely brushed aside a Reuters sources article detailing German defence spending plans, with the piece lacking clarity on whether the touted E60bln of additional spending is for 2025 alone or split across the current parliamentary term.
- Today’s LT OAT and 5-year Gilt auctions saw solid results.
- 10-year EGB spreads to Bunds tightened through the morning, but the moves partially unwound in the afternoon alongside continued equity weakness.
- Eurozone data (strong German factory orders, weak Italian retail sales and in-line Eurozone retail sales) were not market movers.
- Tomorrow’s focus is on the BOE decision. An outcome other than a 25bp cut would be surprising but there will be a number of things to watch: any changes to the guidance and the inflation / growth forecast changes, the vote split and the introduction of new scenarios. (MNI preview here).
