Last week was not only packed with major tier-1 economic data across the G7 currencies but also saw some surprising events, important enough to move the market sentiment. Here’s a recap of the economic events from last week.
Greece - Kicking the can further down the road
The week started on a positive note for the Euro with major news outlets informing that Greece was close to a deal. The news helped support the Euro, single currency which also saw a boost with better than expected economic data in terms of inflation and broadly stronger PMI's. But things turned sour to the middle of the week with Alexis Tsipras' ruling party members reject the negotiation deal going back to square one. Indeed there was no deal done and things turned even strange when Greece decided to skip the IMF payment of 300 million Euros due on June 5th and instead decided to bundle all its payments into a single payment, due on June 30th; in effect buying a few more weeks of time.
It is anyone's guess about this move. Unless Greece gets a new bailout it would be hard to meet the new payout to the IMF, which would amount to 1.3 billion Euros.
IMF's strange request to the Fed
Last week, the markets also witnessed an unusual request from the IMF, asking the US Federal Reserve to hold off its rate hikes until 2016, citing that based on its research, the wage and price inflation still have a long way to go. Currently, the markets are expecting a Fed rate hike in September or October. The Fed Funds futures rate currently points to a 31% probability for a rate hike to 0.25% and a 50% probability for a rate hike in October.
The Fed’s FOMC will be meeting a week later from now on June 17th and while it is highly unlikely that we will see a rate hike this month, the Fed’s forward guidance and tone could very well see what the future holds as far as the rate hikes are concerned. It will also be interesting to see if the Fed will comment on the IMF’s views at its June rate setting meeting.
OPEC – Status quo maintained
The OPEC nations met in Vienna last Friday and decided to leave production unchanged at 30 million barrels per day. The OPEC also reiterated that the markets should get used to seeing the Oil prices trade below the $100 per barrel mark. The expectations into the OPEC meeting was largely on the same lines and the WTI Crude oil futures seemed to have priced this factor in already.
For the past few weeks, WTI Crude Oil has been trading largely sideways for the most part between the $58 - $62 range high and low levels. On Friday after the OPEC released its statement, WTI Crude Oil futures broke out of this range, briefly dropping below the $58 region to test lows to 57.35 and managed to reverse the losses to retest the $58 handle. If WTI Crude Oil fails to break above $58, we could very well expect a short term correction towards $55.6 region.
The US weekly Crude oil inventories, at its most recent release for the week ending 29th May saw the inventories decline by 2.8 million barrels per day but the inventories remain well stocked at one of the highest levels in the past 80 years. With production unchanged and the surging supply should help contain the rally in Crude oil for the near term.
May Jobs Report
The May jobs report released on Friday was a mixed bag at best and it all depended on how the markets perceived the May job print. To briefly summarize:
May Jobs report saw 280k new jobs being added to the economy, above the consensus of 226k
Unemployment rate increased to 5.5% from 5.4%
Manufacturing payrolls increased 7k above the 5k estimates
Underemployment rate remained unchanged at 10.8%
Average hourly earnings m/m increased 0.3% from 0.1% previously and beat estimates of 0.2% and on a y/y basis, average hourly earnings increased 2.3% from 2.2% previously
The US Dollar reacted strongly to the data ignoring the rise in unemployment rate, which was perceived as an increase in the number of people looking for jobs, a sign that the economy was probably heading in the right direction. The job participation rate also increased from 62.8 last month to 62.9.
The stronger report, after a series of weak prints the months earlier has managed to revive the rate hike speculation for September/October periods.
The week ahead is relatively quiet as far as the Euro and the US Dollar are concerned. Greece talks are likely to remain in the headlines and the markets could well start looking forward to the FOMC’s meeting due the week later.