Bond yields head further south
The euro has held most of the modest gains it made against the dollar following Friday’s softer than expected employment report in the US and is trading at around $1.0770 this morning. Sterling has given up its gains against the US currency though to trade at about $1.2540, and is also slightly lower vis-a-vis the euro trading at 85.8p, ahead of the Bank of England’s latest interest rate announcement later this week.
US bond yields have headed further south post the employment report, with 10-year yields now back below 4.5% for the first time in about a month or so, as Fed rate cut expectations harden a bit more (the market sees about an 80% chance of a 25bps cut in September). Equity markets have also rallied, with the S&P 500 adding another 1% yesterday following similar gains on Friday.
The US economy added 175k jobs in April according to the latest employment report, shy of the 240k gain expected by the consensus, while the unemployment rate nudged up to 3.9%. More significantly perhaps, at least from the Fed’s point of view, wage growth eased further with hourly earnings increasing by just 0.2% on the month and the year-on-year increase slowing to under 4% for the first time in almost three years.
ECB Chief Economist Philip Lane says the fall in Euro area services inflation in April (to 3.7% from 4% in March) is “an important step in the next phase of bringing inflation down” to target, as he indicated the central bank remains on track to cut interest rates in June.
The Bank of England MPC is expected to leave interest rates unchanged when it announces its latest monetary policy decision on Thursday. The Committee voted 8-1 to keep rates on hold in March, and the indications are that the lone dissenter may be joined by at least one other member in voting for a cut this time out.
Economic data due today include retail sales in the Euro area and the construction PMI in the UK, while the main release of note for the rest of the week is the Q1 GDP report in the UK on Friday.