Calm start to the week
A quiet opening day to the week, a rare enough event given uncertainty over the past few months, but with little market/political news or economic data to shift currencies, the euro held its own to the dollar, remaining around $1.1420 for much of the day, only briefly dipping towards $1.14 or getting above $1.1430. The dollar did make small gains overnight but the euro is still trading above $1.14 this morning. Similarly, to sterling there was little movement with the trade to the single currency consistent around 84.2p for much of the day, but slightly worse than expected UK labour market data this morning has seen the euro move up to 84.4p this morning. GBPUSD saw sterling briefly move up over $1.3550 at times yesterday but again, the UK currency has lost some ground this morning and is trading at just over $1.35.
After a sizable move up in US bonds yields on Friday, they retrenched a little with 10-year yields down 3bps to 4.48% and similar falls in shorter dated bond yields. European bond yields were largely unchanged with 10-yields bunds remaining at close to 2.56%. Equities also traded sideways with the S&P more or less flat for the day and holding on above 6,000 while in the Europe, the FTSE was also flat the Eurostoxx fell 0.2%.
UK labour market data shows continued signs of cooling. Employment growth in the three months to April fell to 89k, from 112k in the three months to March while a separate measure, payroll employees, saw a bigger than expected 109k fall in May – the biggest fall in a single month since Covid era declines. The unemployment rate also ticked up, to 4.6%, from 4.5%, now up a full 1/2 percent since the summer of last year. The data also shows wages growth is slowing, while still remaining relatively elevated, with weekly earnings (ex bonuses) rising at an annual rate of 5.2% from 5.6% the previous month. This is all broadly in line with BoE projections so is not going to move the dial much for them ahead of the MPC meeting this month where they are expected to stay on hold, before resuming rates cuts later this year.
Irish construction PMI fell to 49.2 in May from 52.4 in April. This is a more subdued reading than expected and followed two months of above 50 readings. There was a marginal decline in home building, the first contraction in 9 months, as well as a reduction in civil building activity while commercial activity picked up. The underlying picture was brighter than the headline with new orders expanding for the fourth month in a row, albeit at a softer pace than in April and March with firms citing uncertainty around US trade policy as a hindrance, but employment gained and firms in the sector continued to have an optimistic view that activity would rise in the coming 12 months.
ECB governing council member Peter Kazimer said that he thinks the Bank has now reached neutral territory with June’s rate cut and questioned if any more cuts were needed. He said that while he sees ‘clear downside risks to growth’ it would be a ‘mistake to neglect upside inflation risks’ and the Council needed assess data over the summer to see if more ‘fine tuning’ is needed.
Looking to the day ahead, we get US NFIB small business optimism while Villeroy, Holzmann and Rehn from the ECB are due out.