Despite the fact that ADP and first jobless claims were quite solid (initial jobless claims came in at 232K vs. 235K estimate), the USD dropped dramatically today (the greenback is ending the day as the weakest of the major currencies) as the Fed “skip in June” leaning was further priced in.
Nonetheless, there was a glimmer of optimism that inflationary pressures were beginning to ease.
As investors flocked to riskier assets, the Australian and New Zealand dollars strengthened relative to their peers. A better Caixan PMI report for China was released today, which also boosted the mood in those currencies.
Several of President Harker of the Federal Reserve Bank of Philadelphia’s remarks on monetary policy and economic forecasts stood out. He stressed the need for vigilant data monitoring to assess if additional policy tightening is required. For 2023, Harker predicted GDP growth of less than 1% and an increase in the unemployment rate to 4.4%. He forecasts that inflation will drop to 3.5% this year, 2.5% next year, and the Fed’s 2% target by 2025. Although Harker seemed optimistic about the effects of rate hikes in the past, he did note reports of reduced consumer spending. He reasoned that, under the current conditions, delaying a rate increase would be the best course of action. He predicted that this year is not likely to see a recession. Maybe not
While everything was going on, the ADP employment report for the month was much above estimates,
- The ADP employment report for May in the United States revealed a rise of 278,000 jobs, which was significantly higher than the predicted 170,000.
- There were an additional 116,000 jobs created by small enterprises, 112,000 by medium-sized ones, and 106,000 by large ones.
- The updated employment total for the preceding month of +291,000 is the highest level seen since June 2022.
While those figures did boost the dollar at first, the report did include some positive information that caused the market to quickly reverse course. Wage data in the report provided that glimmer of optimism. “This is the second month we’ve seen a full percentage point decline in pay growth for job changers,” said the senior economist at ADP. Although hiring has been strong, wage growth has slowed significantly, suggesting that wage-driven inflation may be less of a threat to the economy.
Later, quarterly productivity figures mirrored the slowing wage increase. In particular, actual unit labour expenses came in at 4.2%, well below the 6% projections.
The PMI data for the month was the last bright spot. The Manufacturing Purchasing Managers’ Index for May was 46.9, which was little below the predicted 47.0. However, the PMI’s prices paid indicator showed positive growth. In contrast to the predicted 52.0 and the actual 53.2 from the previous month, it came in at 44.2. In addition, the number of new orders fell to 42.6 from 45.7, which is indicative of a slowdown in business. Manufacturing as a whole has been weakening, as evidenced by a reduction in supply deliveries, inventories, client stocks, backlog of orders, and new export orders. The employment rate ticked up to 51.4 from 50.2 the previous month, which is excellent news for inflation as long as it indicates continued job creation at stable pay rates.
The dollar and rates fell as a result. When analysing the yield curve,
- 2-year yield 4.347% -4.3 basis points
- 5-year yield 3.702% -4.0 basis points
- 10-year yield 3.604% -3.3 basis points
- 30-year yield 3.821% -3.6 basis point
All three major stock market indices ended the day higher, suggesting investors approved of the mix. Only two times in the past nine trading days has the Dow industrial average closed higher. The NASDAQ index, which has been the market leader for the past week, climbed for the fourth day in a row.
- The Dow gained 153.30 points, or 0.47 percent.
- The S&P 500 gained 41.17 points, or 0.98 percent, on the day.
- There was a gain of 165.69 points (1.28%) on the NASDAQ.
Looking at individual stocks,
- With a rise of $19.36, or 5.12%, to $397.70, Nvidia’s share price has resumed its upward trend. AI is the focus.
- Stock in Microsoft rose by $4.19 (1.28%) to $332.58.
- Adobe’s stock price increased by $8.96, or 2.14%, after the company announced improved artificial intelligence features for its software. While Adobe’s earnings won’t be out until June 15 (or thereabouts), the stock price has risen 28.58 percent from May 12.
- The announcement of a new Virtual Reality product boosted Meta’s share price by $7.89, or 2.98%.
- The company’s stock price increased by $2.66, or 1.5%. They plan to unveil their own virtual reality product at their worldwide developer conference on June 5.
The following is a snapshot of foreign markets as the US trading day winds down:
- At $70.14, crude oil is up $2.05, or 3.01%. The price of oil, which dropped to a low of $67.03 yesterday, has now recovered in anticipation of Sunday’s OPEC+ meeting.
- In response to the weaker dollar and lower interest rates, spot gold prices rose $15, or 0.76 percent, to $1977.82.
- Up $0.40, or 1.67 percent, at $23.88 per ounce, silver is performing well.
- At its current price, Bitcoin is trading at $26,850, which is below its 100-day moving average of $26,883 but above its 38.2% retracement of the range from its April low of $26,655.
