Markets

US payrolls delivered once more in May. The Bureau of Labour Statistics reported a 339k net job gain for May. Payrolls beat consensus by a wide margin (237k!!), also taking into account upward revisions to the March and April data (+93k). The employment increase was nevertheless at odds with a significant increase in the unemployment rate (5.7% from 5.4% despite stable participation rate) with the latter being derived from the separate Household Survey which pointed at a >300k net job… loss in May! Average hourly earnings came in as expected at 0.3% M/M (4.3% Y/Y). Markets had to digest the numbers coming from a week long dovish repositioning after future Fed vicechair Jefferson and voting Fed Harker pulled the plug on a June rate hike. It’s skip and go when it comes to them and probably the majority within the Fed. Markets now fully discount a 25 bps July rate hike while the odds of the US central bank hiking already next week are further reduced. US yields rose by 7.3 bps (30-yr) to 15.8 bps (2-yr) in a daily perspective. US Treasuries underperformed German Bunds with German yields closing 3.3 bps (30-yr) to 9.5 bps (2-yr) higher. The dollar profited from the rate support, but as for US yields, last week’s highs were untested. The trade-weighted dollar (DXY) closed at 104.02 from 103.56 and a May high at 104.70. EUR/USD closed at 1.0708 from 1.0762 and compared to the May low of 1.0635. US stock markets didn’t bother the higher US interest rates as the ongoing labour market strength once again underpins the resilience of the economy. Key indices closed 1% (Nasdaq) to 2% (Dow) higher. Talk that China weighs new property spending to help the economy benefited risk sentiment as well. Asian risk sentiment remains bullish this morning with China underperforming despite a strong services PMI. Higher oil prices (see below) offer part of the explanation. They weigh on core bonds as well.

Today’s agenda contains US non-manufacturing ISM. We expect the global divergence between weakness in manufacturing and strength in domestic services to persist in the US as well. This should avoid a nasty, negative surprise. The eco calendar contains second tier eco data this week with US and European central bankers in their blackout period ahead of key policy meetings next week. This sets the stage for more sideways action with May highs in US rates and the dollar being important resistance levels. We keep a close eye at US Treasury funding statements/action as well. They ran down their general account at the Fed to a rock-bottom $23bn against the background of the debt ceiling debate and have to replenish in coming weeks/months.

News and views

At the OPEC+ meeting on Sunday in Vienna, Saudi Arabia announced that it will cut its production by 1 mln barrels per day as the country aims to stabilize the market, amid persistent downward pressure on the oil price. Other members of the group didn’t engage to a further reduction, but agreed to maintain current cuts till the end of 2024. Russia also didn’t commit to deeper cuts. The United Arab Emirates even are allowed a higher production quotum for 2024. The oil price this morning gains modestly with Brent trading close to $77/b.

Rating agency S&P kept the French AA credit rating unchanged on Friday. The outlook remains negative. The agency expects tighter financial conditions and high core inflation to restrain the country’s activity in 2023 and 2024. It expects France’s budget deficit to decline to 3.8% of GDP in 2026 from about 5% in 2023. Government debt is expected to stay above 110% of GDP, with the forecasts still subject to risks related to growth and the implementation of the government’s economic and fiscal policy. Rating agency Fitch affirmed its AA- UK rating and also kept a negative outlook. The agency expects the UK general government debt to GDP ratio to reach 104.8% of GDP by 2024 from 101% in 2022. The negative outlook signals macroeconomic challenges, including weak growth and suborn inflation, higher borrowing costs and expenditure pressures due to the cost of living crisis and the upcoming elections. Fitch expects the UK to enter a mild recession in 2023 with a 0.1% contraction of GDP in 2023 and a weak recovery of 1.0% in 2024. Finally, Fitch kept the US AAA credit rating on watch negative, even after the political agreement to raise to US debt ceiling, avoiding a default as the rating agency will ‘consider the full implications of the most recent brinkmanship episode and the outlook for medium-term fiscal and debt trajectories’.

Download The Full Sunrise Market Commentary

This non-exhaustive information is based on short-term forecasts for expected developments on the financial markets. KBC Bank cannot guarantee that these forecasts will materialize and cannot be held liable in any way for direct or consequential loss arising from any use of this document or its content. The document is not intended as personalized investment advice and does not constitute a recommendation to buy, sell or hold investments described herein. Although information has been obtained from and is based upon sources KBC believes to be reliable, KBC does not guarantee the accuracy of this information, which may be incomplete or condensed. All opinions and estimates constitute a KBC judgment as of the data of the report and are subject to change without notice.

Recommended Content


Recommended Content

Editors’ Picks

EUR/USD holds near 1.0850 after US PMI data

EUR/USD holds near 1.0850 after US PMI data

EUR/USD holds steady at around 1.0850 in the second half of the day on Wednesday. The mixed US PMI data limits the US Dollar's gains but the risk-averse market atmosphere doesn't allow the pair to gather recovery momentum in the American session

EUR/USD News

GBP/USD recovers above 1.2900 as USD struggles to gather strength

GBP/USD recovers above 1.2900 as USD struggles to gather strength

GBP/USD trades modestly higher on the day above 1.2900 on Wednesday. The US Dollar struggles to build on Tuesday's gains following the mixed PMI data for July, allowing the pair to stay in positive territory in the second half of the day.

GBP/USD News

Gold extends recovery, advances above $2,420

Gold extends recovery, advances above $2,420

Gold builds on Tuesday's recovery gains and trades above $2,420 on Wednesday. The pullback seen in the 10-year US Treasury bond yield and the US Dollar after US PMI data help XAU/USD stretch higher during the American trading hours.

Gold News

Bitcoin price volatility expected amid speculation of Kamala Harris joining Bitcoin Conference with Donald Trump

Bitcoin price volatility expected amid speculation of Kamala Harris joining Bitcoin Conference with Donald Trump

Bitcoin price struggles around $66,000 on Wednesday. US spot Bitcoin ETFs experienced minor outflows on Tuesday, coinciding with the continued movement of Mt. Gox funds for repayment, which could exert downward pressure on Bitcoin's price.

Read more

July PMIs point to a very sluggish Eurozone recovery

July PMIs point to a very sluggish Eurozone recovery

This is another report that will not please the ECB. The July PMIs show that the eurozone economy is losing further momentum, as both the manufacturing and services sectors see activity slowing.

Read more

Majors

Cryptocurrencies

Signatures