AUSTRALIA: Unemployment Rate Drop Expected For May
May jobs data are released on Thursday and will be watched closely given the RBA’s dual mandate and that while the labour market remains tight, there are signs it is gradually easing. The data has been volatile lately and so it will continue to be important to look through that volatility to the underlying trends. Bloomberg consensus expects 30k new jobs with the unemployment rate easing 0.1pp to 4.0%.
- April saw employment rise by 38.5k yet the unemployment rate rose 0.2pp to 4.1% which was due to the labour force rising faster than employment but also because of a higher-than-usual number of people taking time off before starting a new job. There is likely to be some unwind of this effect in May which should reduce the unemployment rate.
- If employment comes in close to consensus at 30k, it will be slightly higher than the 6-month average to April but a lot lower than the 3-month average of around 50k. Employment grew at 2.8% y/y in April and a consensus outcome would see it slow back to 2.4%. ANZ’s forecast is below consensus at 15k, CBA is in line, while NAB is above with 40k and Westpac at 45k. Projections are between +107k and -10k.
- The April unemployment rate was a low 4.1% at 4.054%, thus there is a good chance that it is revised lower to 4.0%. There is a range of forecasts for May between 3.9% and 4.3% with NAB and Westpac at consensus but ANZ below at 3.9% and CBA above at 4.1%.
- The participation rate is forecast to be steady at 66.7%.
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LNG: Gas Prices Lower On Soft Fundamentals
Natural gas prices were lower across markets on Friday with Europe down 3.2% to EUR 29.87 after a high of EUR 31.59 early in the session. They are now up only 2.6% in May. Goldman Sachs expects prices to trade around EUR 30 over the summer. Even though demand is soft in Europe, the region remains vulnerable to supply disruptions globally and tensions in Russia/Ukraine and the Middle East are being monitored closely.
- Maintenance is in progress in Europe’s main producer Norway and any unplanned extensions will be watched closely. Elevated storage levels reduce the impact of any disruptions.
- US natural gas fell 2.1% to $2.25 but is still up 13.1% this month. It is currently lower at around $2.23. The outlook is for mild weather but also the previous week saw a smaller-than-expected inventory build. Prices are likely to remain pressured as there has been little need for cooling so far this season. The end to pipeline maintenance should ensure solid flows. Production as of Friday was down 1.2% y/y while demand was up 5.4% y/y.
- Asian gas prices also fell around 2% on Friday to be up 2.3% in May. Demand has improved in the region due to increased power demand for cooling.
FOREX: USD/JPY Eyeing 156.00 Test, Aust Business Survey, NZ Inflation Expectations Later
The USD is close to unchanged in the first part of Monday dealing, albeit with a slight upside bias. The BBDXY index was last near 1254.40.
- USD/JPY has firmed towards recent highs, last around 155.90/95. Upside focus may rest on the May 2 high at 156.28 if we can break above the figure level.
- US yields are lower in early dealings, but losses are around 1bps at this stage. US equity futures sit down a touch.
- USD/JPY gains are still outperforming US-JP yield differentials, although these spreads have stabilized somewhat.
- AUD/USD is down a touch near 0.6600, while NZD/USD is around 0.6020.
- Earlier we had the NZ services PMI, which fell to 47.1 from a revised 47.2 reading. NZ food prices rebound to 0.6% m/m, after March's 0.5% fall. Later on, we get NZ 2Q inflation expectations.
- Before that we have the NAB April business survey print in Australia.
US TSYS: Treasury Futures Edge Slightly Higher, Curve Little Changed
- Treasury futures have edged higher this start the week. however well within Friday's ranges. The 10Y contract is up (+ 02+) at 108-25, while the 2Y contract is up ( +00⅜) at 101-20.75
- Looking at 10Y technicals, we still sit comfortably above initial support at 108-15+ (20-day EMA) a break here would open a retests of 107-04 (Apr 25 lows), while initial resistance is 109-06+/08+ (Channel top from Feb 1 high / 50-day EMA)
- Cash Treasury curve is little changed this morning with the 2y10y -0.562 at -37.691, yields are about 1bps lower.
- (MNI): Bowman Doesn’t See Rate Cuts Being Warranted This Year - (see link)
