The Overnight Report: Pause Before US Non-Farm Payrolls

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World Overnight
SPI Overnight	7852.00	+ 18.00	0.23%
S&P ASX 200	7821.80	+ 52.80	0.68%
S&P500	5352.96	– 1.07	– 0.02%
Nasdaq Comp	17173.12	– 14.78	– 0.09%
DJIA	38886.17	+ 78.84	0.20%
S&P500 VIX	12.58	– 0.05	– 0.40%
US 10-year yield	4.28	– 0.01	– 0.19%
USD Index	104.11	– 0.19	– 0.18%
FTSE100	8285.34	+ 38.39	0.47%
DAX30	18652.67	+ 76.73	0.41%

US markets paused ahead of the all-important non-farm payrolls release in the US later today. SPI futures are indicating a rather mixed opening today with energy and commodities supported.

By Chris Weston, Head of Research, Pepperstone

Good morning,

-The ECB hit market expectations
-What went down in US equity markets?
-Commodity moves – a noted range break in Gold
-Asia equity opening calls
-NFPs – where the skew in risk resides

The ECB set the stage for the EU/US trading session and delivered a hawkish cut that really hasn’t surprised anyone – EURUSD popped into 1.0900, but once again traders faded the move above the figure and 1.0900 remains the zone the EUR bulls really want to see give way.

As expected, the ECB did tweak its growth forecast for 2024 to 0.9% (from 0.6%) and its core CPI call to 2.8% (2.6%), and we know with some conviction that the collective within the ECBs ranks are non-committal on future cuts and working on a meeting-by-meeting basis.

A somewhat content central bank but one not celebrating just yet, and while we won't see a follow-up cut in July, if the data is there then we could see one in September, especially if the market feels a greater belief the Fed also ease in that month.

EU equities found small sellers post ECB, but not enough to push the day's net change into the red, and the EU Stoxx closed +0.7%. In the US, we’ve seen sellers in Nvidia (-1.2%) and Apple (-0.7%), but with Microsoft holding in and good buyers seen in Amazon and Alphabet, the result was a flat close in both the S&P500 and NAS100.

S Treasury markets have closed unchanged across the various maturities, with US unit labour costs (4% vs 4.9%) and weekly jobless claims (229k vs 220k expected) the main economic data points to navigate, although they failed to really move the dial ahead of US nonfarm payrolls (NFP). I’d argue the Fed will be fairly pleased by the lower read in unit labour costs, but it is just a small win in the grand scheme of things and won't truly affect their thinking.

We have some notable moves in commodity markets – Gold has broken above the range highs of US$2362, which bodes favourably for those set long, although the upside is hard to chase ahead of NFPs.

Gold miners have worked well, with the GDX ETF closing at +3.5%. Silver has really kicked with price pushing +4.3% and at $31.30 looks up at the 29 May highs of $33.30 – big levels for the radar.

Copper sits at +1% at US$4.671 and really needs a push through US$4.696 to get the momentum pumping. Crude has added 2% and pushed into US$75.57 as we look to see if it can kick back into the former trading range of US$81 to US$76 – where the moves in crude have seen US energy names outperform on the day (the S&P500 energy sector closed +0.6%).

The wash-up of the leads is we should see Asian equity indices open on a mixed footing, with the ASX200 eyed +0.2% at 7835, the HK50 +0.5% and the NKY225 -0.1%. By way of a guide, BHP’s ADR suggests an open at $44.77 (+1.6%), so we can assume that materials and energy plays will support, and we may see a modestly weaker open for ASX200 banks, which have been on fire of late.

US NFP playbook

The big factor, of course, not just for equity heads, but on a multi-asset basis, is assessing the risk of holding exposures through US nonfarm payrolls (22:30 AEDT) – the consensus is that we see 180k jobs created, with the unemployment rate (U/E) unchanged at 3.9% and average hourly earnings (AHE) also eyed at 3.9%. The Goldilocks scenario, where risky assets rally, would be an unchanged U/E rate, payrolls coming in between 180k to 200k and a moderation in AHE.

The scenario where risk is sold would likely be a strong print that prices out rate cuts this year – that being, a fall in the U/E rate to 3.8% or below, with payrolls coming in above 250k. The alternative scenario that leads to the same outcome of de-risking, is where perceived recessionary risk rise modestly, and for that, we would need the U/E rate to rise above 4%, with payrolls below 140k.

Given US Treasuries have rallied into NFPs, I’d argue there are greater downside risks for equity and gold (upside for the USD), than a positive scenario where the data on a holistic basis hits the sweet spot – a lot of what-ifs and hope, and as always the market will see what it wants to see – not a great backdrop for traders.

Today's economic data:

-Weekly Initial Claims 229K (Briefing.com consensus 216K); Prior was revised to 221K from 219K; Weekly Continuing Claims 1.792 mln; Prior was revised to 1.790 mln from 1.791 mln

-Q1 Productivity-Rev. 0.2% (Briefing.com consensus 0.3%); Prior 0.3%; Q1 Unit Labor Costs-Rev. 4.0% (Briefing.com consensus 4.7%); Prior 4.7%

-April Trade Balance -US$74.6 bln (Briefing.com consensus -US$76.5 bln); Prior was revised to -US$68.6 bln from -US$69.4 bln

Friday's economic calendar:

-8:30 ET: May Nonfarm Payrolls (Briefing.com consensus 185,000; prior 175,000), Nonfarm Private Payrolls (Briefing.com consensus 168,000; prior 167,000), Average Hourly Earnings (Briefing.com consensus 0.3%; prior 0.2%), Unemployment Rate (Briefing.com consensus 3.9%; prior 3.9%), and Average Workweek (Briefing.com consensus 34.3; prior 34.3)

-10:00 ET: April Wholesale Inventories (Briefing.com consensus 0.2%; prior -0.4%)

-15:00 ET: April Consumer Credit (Briefing.com consensus US$11.0 bln; prior US$6.3 bln)

Corporate news in Australia:

–ACCC has approved a code-sharing arrangement between Virgin Australia and Air New Zealand ((AIZ)) for trans-Tasman flights, increasing fare options for passengers

-Telix Pharmaceuticals ((TLX)) is following Life360 ((360)) to the Nasdaq

-Yesterday, IDP Education ((IEL)) issued a profit warning as government policies restricting immigration are hurting the intake of foreign students

–Mineral Resources ((MIN)) sold a 49% stake in its Onslow Iron project's haul road to Morgan Stanley for $1.3bn, retaining majority ownership and usage rights

-Dexus ((DXS)) and Australian Retirement Trust (ART) plan to collaborate in acquiring the Queensland government's 33% stake in Powerco

Spot Metals,Minerals & Energy Futures
Gold (oz)	2376.00	+ 20.40	0.87%
Silver (oz)	31.27	+ 1.35	4.51%
Copper (lb)	4.51	+ 0.01	0.27%
Aluminium (lb)	1.19	+ 0.01	0.50%
Nickel (lb)	8.33	– 0.04	– 0.52%
Zinc (lb)	1.30	+ 0.01	0.55%
West Texas Crude	74.66	+ 0.33	0.44%
Brent Crude	80.02	+ 1.37	1.74%
Iron Ore (t)	108.50	+ 1.48	1.38%

Quasar Elizundia Research Strategist at Pepperstone:

Gold prices edged higher earlier today, continuing their upward trajectory for the second consecutive session. This rise is influenced by the start of the central bank easing cycle, which began yesterday with the Bank of Canada and with the European Central Bank.

Gold prices are also supported by market expectations of a stronger likelihood of a rate cut by the Federal Reserve in September, a sentiment reinforced by a softening labour market. Adding to that, a recent decline in Treasury yields has bolstered the appeal of non-yielding assets like gold. If this trend continues, it could further enhance the precious metal’s attractiveness.

However, gold could face near-term resistance and limit the continuation of its upward price movement due to Friday’s release of the Non-Farm Payroll (NFP) report. The market expects the US economy to have added 185,000 jobs in May, an acceleration compared to the 175,000 jobs added in April. Gold prices could come under pressure if May’s NFP figures surpass market consensus.

The Australian share market over the past thirty days…

Index	06 Jun 2024	Week To Date	Month To Date (Jun)	Quarter To Date (Apr-Jun)	Year To Date (2024)
S&P ASX 200 (ex-div)	7821.80	1.56%	1.56%	-0.95%	3.04%

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
AMA	AMA Group	Speculative Buy	Bell Potter
CRN	Coronado Global Resources	Downgrade to Speculative Buy from Add	Morgans
GMD	Genesis Minerals	Upgrade to Accumulate from Hold	Ord Minnett
		Upgrade to Buy from Neutral	UBS
IFM	Infomedia	Upgrade to Buy from Hold	Bell Potter
LOV	Lovisa Holdings	Upgrade to Outperform from Neutral	Macquarie
		Downgrade to Equal-weight from Overweight	Morgan Stanley
NGI	Navigator Global Investments	Downgrade to Neutral from Outperform	Macquarie
NST	Northern Star Resources	Upgrade to Buy from Neutral	UBS
		Downgrade to Hold from Accumulate	Ord Minnett
RRL	Regis Resources	Upgrade to Buy from Sell	UBS
SFR	Sandfire Resources	Downgrade to Hold from Accumulate	Ord Minnett
SM1	Synlait Milk	Downgrade to Neutral from Buy	UBS
SSR	SSR Mining	Upgrade to Buy from Neutral	UBS
TLC	Lottery Corp	Upgrade to Buy from Neutral	Citi

For more detail go to FNArena's Australian Broker Call Report, which is updated each morning, Mon-Fri.

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