All eyes on NFP report to close the week

• There was limited economic data to shift markets overnight and all eyes will be on the release of US jobs numbers at the end of the week. Market consensus is for around 650k jobs to have been added in May after 266k were added in April while wage growth is expected to slow considerably as more low- income workers come back into the labour force.
• In emerging markets, the Reserve Bank of India will set policy on June 4 with policy rates expected to be on hold at 4%. Given that India’s economy will likely have stumbled in recent weeks given Covid-19 lockdowns that have needed to be imposed in major states, we doubt there will be substantial pressure on the RBI to tighten policy in the near term. 
• The Caixin China composite PMI for May came in at 53.8, a deceleration from the April level of 54.7. Much of the drop is down to a weaker performance in the services sector which fell to 55.1 from 56.3 a month earlier.
• In Tunisia, the Banque de Tunisie left its benchmark interest rate on hold at 6.25% for the fourth consecutive meeting. The bank cut 150bps through 2020 as the pandemic crisis took hold. In its statement, the MPC acknowledged balanced risks from rising inflation and weak economic growth after first quarter y/y contraction of -3.0%. We recently downgraded our 2021 growth projection from 4.5% to 3.8% as the pandemic crisis continues to weigh on the economy.

Today’s Economic Data and Events

09:00 IN Services PMI

11:00 TU CPI y/y: forecast 17.25%

12:00 EC Composite PMI May (final): forecast 55.1

16:15 US ADP employment change May: forecast 650k

18:00 US ISM Services index: forecast 63.2

Fixed Income

• With little push from data, US Treasuries moved higher overnight. Yields across the curve moved lower with 2yr UST yields marginally lower at 0.1446% and 10yr yields falling almost 2bps to 1.5875%. The Federal Reserve announced that it would begin to sell corporate debt that it purchased during the peak of the Covid-19 pandemic last year.
• The governor of Turkey’s central bank said that expectation for rate cuts“need to disappear” despite commentary from the president of Turkey earlier in the week suggesting that rates may be cut at one of the upcoming meetings. Yields on Turkish government 10yr bonds pushed back up above 18% overnight for the first time the end of March.
• Saudi Aramco has reportedly mandated banks for a USD 5bn issue that could hit markets as early as June, likely as a sukuk.

FX

• It was two-way action for most currencies overnight with early moves favouring the US dollar against most peers before a reversal later in the session. The DXY index managed to hold its gains though, barely rising to 89.909.
• After having pushed to as low as 1.2166 the Euro managed to stage a recovery back to the 1.22 level is has been trading around recently. There was a similar move in USDJPY which pushed up to almost 109.90 before pulling back closer to 109.50.
• USDCAD was about the only major pair with a consistent move stronger against the US dollar. The loonie gained 0.3% against the greenback, with the pair falling to USDCAD 1.2035 overnight.

Equities

• Equity markets were quiet yesterday, but what movement there was was largely upwards. In the US, all three major benchmark indices closed up 0.1%.
• In Europe, the STOXX 600 continued to push higher on to new record gains with a 0.3% gain. The DAX added 0.2%, the FTSE 0.4% and the CAC 0.5%.
• Within the region, the DFM gained 0.1%, the ADX 0.2% and the Tadawul 0.6%. The EGX 30 in Egypt continued to lose ground however, closing -1.2% lower and is now down -6.7% ytd.

Commodities

• Oil prices consolidated their recent high levels with gains of around 1.6-1.7% across the major benchmarks. Brent settled up at USD 71.35/b and has now hit a new year-to-date high of USD 71.82/b. WTI rose to USD 68.83/b overnight and is now threatening to break above USD 70/b with further gains this morning.
• Nuclear negotiations between parties to the JPCOA adjourned overnight with plans to reconvene next week. The market may be pricing in a later than expected return of Iranian crude as a deal has so far not been forthcoming.
• Oil markets also got a boost from a decent draw in stockpiles according to the API. Total crude stocks fell 5.4m bbl last week although there were builds in gasoline and diesel. Official EIA data has been delayed by a day thanks to a public holiday at the start of the week.

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