ON DECK FOR THURSDAY, JUNE 5
KEY POINTS:
- Long-ends shake off a weak Japanese long bond auction
- Bowman’s confirmation clears the way for regulatory reforms like the SLR
- ECB to cut, but forecasts could be more important
- US job cuts to be refreshed; mind the seasonality
- Waiting for Russia’s retaliation that Trump ignores
- The BoC has a chance to clarify muddled communications today
- German factories surprise
- Swedish rates outperform on soft CPI
- Canada-US trade figures on tap
Global markets are on decent footings so far this morning alongside some key developments. Equities are slightly higher across N.A. futures and European cash markets. The dollar is broadly softer except against traditional safe havens like the yen and CHF. Bond yields are gently lower across most global benchmarks except for a slightly cheaper US front-end. There is no material follow-through on the Bank of Canada’s decisions after they did the right thing holding the policy rate unchanged (recap reminder here) but we’ll see if a BoC official clarifies contradictory communications today.
GLOBAL LONG BONDS SHAKE OFF A POOR JAPANESE AUCTION
Japan’s long-bond auction didn’t go so well but was quickly shaken off in favour of broader drivers. The bid-to-cover ratio of 2.91 (3.07 prior) wasn’t great (chart 1), and it settled at a yield of 2.9% that was higher than the yield going into the auction. And yet the long-end rallied into this morning with local participants fingering short-covering as the explanation. Or maybe its apprehension ahead of the ECB and US payrolls and confidence that US banks will be allowed to ramp up Treasury holdings (see below). Still, the yen is the weakest performer to the dollar this morning, but so is CHF on a general risk-on day that is weakening the dollar.
ECB TO CUT
Now it’s onto the ECB that is widely expected to cut. The statement arrives at 8:15amET and will be followed by President Lagarde’s press conference 30 minutes later. I’m sure we’ll get another rant from Trump about why the Fed isn’t cutting, notwithstanding the fact that the Eurozone isn’t the one that imposed absurdly high and protectionist tariffs that are roiling supply chains and sparking higher US inflation risk.
The ECB's updated forecast will be crucial in assessing the potential impact, especially given that this will be its first revision following the latest round of tariffs imposed by former U.S. President Donald Trump on Liberation Day. Given that the ECB is approaching a neutral setting, the bias may continue to be expressed in guarded, careful, data dependent fashion.
US JOB CUTS TO BE REFRESHED SHORTLY
On tap will be US Challenger job cuts shortly (7:30amET). They peaked at 275k in March for the highest reading since 2020 before falling back to 105.4k in April. The figures are not seasonally adjusted and so while they are higher than the start of recent years, there has been a seasonal pattern of coming in higher early in the year and then quickly ebbing. We could be on that same path again, especially since DOGE cuts to federal government employees have peaked.
WAITING FOR RUSSIA’S RETALIATION
Geopolitical risk is also lurking in the background, waiting to pounce forward at any moment after Putin told Trump (according to Trump…) that he would retaliate against Ukraine’s brilliant drone attacks. It’s uncanny that a Russian leader would tell a US President that he’ll attack an ally or quasi-ally and a US President basically shrugs. America First means standing by your allies and knowing who your foes are and I’m not sure anyone knows where the US stands on either count these days.
BOWMAN’S CONFIRMATION CLEARS THE DECKS FOR REGULATORY REFORMS
Michelle Bowman was confirmed by the Senate last evening as Vice Chair for Supervision at the Federal Reserve. This opens the door to now pursuing select regulatory reforms such as altering the Supplementary Leverage Ratio to enable banks to play a more active role in the Treasury market and simplifying capital requirements.
OVERNIGHT RELEASES
There were a few overnight releases that didn’t sway much.
German factory orders surprised higher with a 0.6% m/m rise in April (-1.5% consensus) following a prior gain of 3.4%. It’s possible that tariff front-running continued to exert influences. Autos were up 1.5% m/m, computers/electronics were up 5.4%, and metal production gained 1.5%.
Sweden’s front-end is outperforming after a soft CPI reading. CPI was flat at 0% m/m (0.2% consensus) and underlying inflation ex-energy was up 0.2% (0.3% consensus).
China’s private composite PMI fell 1.5 points into contraction at 49.6. That was entirely due to the already known 2.1 point drop in the manufacturing PMI to 48.3 as the services PMI increased 0.4 pts to 51.1.
TRADE FIGURES ON TAP
Canada updates trade figures for April this morning that will help to track implications for GDP growth (8:30amET). The US also refreshes trade figures, but we already know the goods component onto which a usually stable services balance is tacked. Other minor releases including US weekly initial claims (8:30amET) and Canada’s Ivey PMI (10amET).
BOC TO SPEAK ON COMMUNICATIONS TODAY
After the BoC did the right thing holding, one of its Deputy Governors will speak about communications. DepGov Kozicki’s address titled “Talking to Canadians: How Real-World Insights Shape Monetary Policy” will be available online at 12:20pmET with audience Q&A to follow but no press conference. I’m much less interested in the title than what I hope to be a question that reconciles the conflict in the BoC’s communications that I wrote about in my recap (here).
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