June 6, 2022

“The US dollar index was propelled above the 102.00 mark this weekend following a better-than-expected US employment report – indicative of a tight labour market, this could result in the Federal Reserve maintaining its aggressive path of interest rate hikes.”

Tim Hallinan – Trading Director

Main Headlines

The US economy registered another month of solid jobs growth in May, despite employers grappling with a historically tight labour market and policymakers’ efforts to cool demand. The jobless rate steadied at 3.6%, just 0.1% above the level it stood at in February 2020 before the coronavirus pandemic spread globally. According to the Bureau of Labor Statistics, leisure and hospitality was among the sectors to see “notable” gains. Despite these gains, the rapid recovery of the US labour market — which has far outpaced the sluggish bounce back that characterised the post-global financial crisis period — has been overshadowed in large part by the highest inflation in four decades. With roughly 1.9 vacant positions for every unemployed worker, there are also broad concerns that a prolonged shortfall of people willing to join the labour force will keep upward pressure on prices as employers are forced to continue raising wages and improving benefits in order to attract new hires and keep those already on payroll.

Boris Johnson’s key allies are preparing to defend him in a challenge to his leadership, as they conceded it was increasingly likely that rebel Conservative MPs had reached the key threshold needed to trigger a vote of no confidence in the UK prime minister this week. Allies of the prime minister said the threshold may have been reached following claims by a number of rebels on Sunday that they had enough support to trigger a ballot. At least 30 Tory MPs have publicly called on Johnson to quit as discontent has grown over the partygate scandal following the publication of a highly critical report by senior civil servant Sue Gray in which she questioned his leadership. The prime minister will attempt to shift the focus on to domestic policy with a speech on Tuesday on housing, including plans to extend the right to buy to housing association tenants. Johnson will also continue work on a growth strategy ahead of a joint speech on the economy with chancellor Rishi Sunak.

GBP

Sterling is well bid against most major currencies overnight. The UK is preparing to unveil a set of technology-focused policies this month covering artificial intelligence, quantum computing and digital health, as the government tries to bolster London’s start-up scene following Brexit and the coronavirus pandemic. Business lobby groups have called for an overarching digital strategy by the government to boost the tech industry. The CBI last month said that ministers needed to “unlock investment in digital” and “build business confidence and willingness to invest” by publishing a strategy. British transport minister Grant Shapps said on Sunday the government would work hard with the aviation industry to avoid a repeat of the chaos at airports last week as passengers faced lengthy delays and cancellations of hundreds of flights. Airports across Europe have struggled to cope with a post-pandemic rebound in demand, but British airports have been particularly hit by major disruption over the past week.

EUR

The euro is stronger against the dollar and weaker against sterling this morning. The European Central Bank is this week set to strengthen its commitment to prop up vulnerable eurozone countries’ debt markets if they are hit by a sell-off, as policymakers prepare to raise rates for the first time in more than a decade. The bulk of the 25 governing council members are expected to support a proposal to create a new bond-buying programme if needed to counter borrowing costs for member states, such as Italy, spiralling out of control, according to several people involved in the discussions. Turkey’s annual inflation rate jumped to a 24-year high of 73.5% in May, fuelled by the war in Ukraine, rising energy prices and a tumbling lira – though the figure was slightly lower than economists had feared. Inflation has surged since last autumn, when the lira slumped after the central bank launched a 500 basis-point easing cycle sought by President Tayyip Erdogan.

USD

The dollar is weaker than most major currencies in the early morning trade. US President Joe Biden, who as a candidate vowed to make Saudi Arabia a “pariah” in response to the assassination of a prominent dissident, has decided to travel to Riyadh this month to rebuild relations with the oil-rich kingdom at a time when he is seeking to lower gas prices at home and isolate Russia abroad. Amazon and Alphabet are spearheading what is shaping up to be the most intense political campaign by corporate America in recent history as part of a last-ditch attempt to stop Congress from passing laws to curb their market power. The companies are targeting a “self-preferencing” bill which would prevent large online platforms from using their dominance in one field to give other products an unfair advantage. If the bill goes through, it is likely to lend momentum to a wave of legislation aimed at strengthening America’s competition rules, in what could be the biggest update of the country’s antitrust rules in a generation.

Markets

Stocks in Europe gained along with US equity futures Monday as Beijing further eased Covid restrictions, helping soothe a fragile mood amid inflation and rate-hike concerns. Treasuries and the dollar slipped. Basic resources led gains in the Stoxx Europe 600 index as copper surged to its highest since April, with sentiment across industrial metals bolstered by China’s gradual reopening. The UK benchmark climbed more than 1% as traders returned after a four-day break. Futures on Nasdaq 100 jumped 1.4% after the Wall Street Journal reported that Chinese regulators are set to ease curbs on ride-hailing giant Didi Global Inc. and two other US-listed tech firms. Stronger-than-forecast US hiring data for May suggested the Federal Reserve won’t waver from its tightening path to rein in price pressures. But Goldman Sachs Group Inc. economists said the Fed may be able to pull off its aggressive rate-hike plan without tipping the country into recession.

Main Economic Data/Central Banks/Government (All Times CET)

9:00 a.m.: Czech Republic April industrial output
10:00 a.m.: UK May new car registrations
1:00 p.m.: Turkey to sell bonds

Corporate Events

Earnings include Science Applications, Futu, Coupa Software, HealthEquity, Gitlab

Apple Worldwide Developers Conference, through June 10

To learn more about Ballinger & Co., please visit our website or our LinkedIn page.