Lagarde On Pause, Trump On The Phone, NFP On The Docket

WHERE WE STAND – Yesterday was ‘ECB Day’, which is much like Christmas Day for market participants, only about 100x worse in every imaginable way.

Anyway, the Governing Council actually bucked the recent trend of boring decision days, duly delivering the 25bp cut that participants had expected, though doing so in hawkish fashion, with President Lagarde stressing that policy is in a “good place” and “well positioned” to navigate uncertain economic conditions. For the uninitiated, this is central bank speak for ‘we don’t want to cut anymore’, with Bloomberg sources later confirming this, noting that “some” officials think the easing cycle is already over, with a pause likely in July.

This chimes with my new ECB base case. If the Governing Council don’t up the dovish ante when they project an inflation undershoot for at least the next 18 months, then they probably never will. At least, that is, unless an external factor, probably a flare up in trade tensions, forces them to. Unless that happens, the ECB will try their hardest to ensure that a 2% deposit rate is the floor for this cycle.

In less optimistic ECB news, President Lagarde confirmed yesterday during the press conference that she’s “fully determined” to complete her term at the ECB, despite rumours suggesting she may quit early to take over at the helm of the WEF. Terrible news for market participants who have to endure another two years of her at the helm, but brilliant news for those who own tanning salons in Frankfurt.

Speaking of suntans, President Trump was again in the headlines yesterday, as the long awaited call between Trump and Chinese President Xi finally took place, at Trump’s request.

In short, TACO is back! Though, I’m not sure it ever went away to be honest. The call seemed to yield little by way of concrete developments, though there was an agreement for a new round of talks to begin “asap”, with Trump also confirming that he’ll be heading to China, though not giving a date for such a trip.

While some may bemoan the lack of actual, firm commitments here, this reinforces the overall direction of travel, which is one towards calmer rhetoric, cooler heads, and deals eventually being done. This applies not only to China, but also to trade tensions more broadly, with there also having been some positive noises on the US-EU front yesterday.

This reinforces my bullish view on equities, even if we did see some pressure yesterday after President Trump’s falling out with Elon Musk. That aside, and there’s no way I’m covering that soap opera here, my targets in spoos remain 6k, then fresh highs.

Once more, we saw risk assets shrug off disappointing economic data before the late-day selling pressure emerged, this time the weekly initial jobless claims figure rising to its highest since October, at 247k. This remains a market content to ignore ‘bad’ news, and rightly so, given that the factor skewing that data – namely, tariffs, and trade uncertainty – looks to be fading relatively rapidly.

This shrugging off of soft figures was also in evidence elsewhere, with Treasuries softer across the curve, led by the front-end, and the dollar also paring post-data declines in relatively rapid fashion. Treasury dip buyers seem to be done & dusted for the time being, with both FX and FI likely having also seen a bout of position squaring yesterday, ahead of the jobs report later today. On that note, it was very telling to see recent ranges hold on a closing basis, with the DXY still in a 98-102 band, and other G10s yet again mean reverting in rapid fashion.

Nevertheless, that brief bout of USD selling did see cable reclaim the 1.36 figure, and print fresh YTD highs, intraday. Frankly, though, that’s about the only positive from a UK markets perspective right now, after a couple of headlines yesterday.

Firstly, news from the ONS that last month’s CPI figures were overstated by 0.1pp due to a miscalculation in vehicle excise duty changes. To recap, this means that the ONS have now made a mess of employment, trade, growth, PPI, CPI, and RPI figures over the last couple of years – plus, potentially more that we, and they, are as yet unaware of. This is little short of a scandalous degree of negligence that will have a detrimental impact on effective monetary and fiscal policymaking.

Then, news that Wise (WISE) will be transferring their primary listing away from London, instead moving to New York. This, sadly, is the latest instalment in the ‘death by a thousand cuts’ saga that the London equity market is having to endure, amid a dearth of IPOs, and an ever-increasing number of firms flee the Square Mile. Sadly, it is getting to the stage where the horse has bolted, and this becomes a self-fulfilling vicious doom loop, with HM Treasury seemingly unwilling to consider even simple changes like abolishing stamp duty on shares to improve liquidity.

I hope that the last firm to leave remembers to turn out the lights.

LOOK AHEAD – On that bright and cheery note, we turn to ‘Jobs Day’ today.

Headline nonfarm payrolls are set to have risen by +125k last month, a slowdown from the +177k pace seen in April, though a rate which would still, just about, be above the breakeven pace required for job creation to keep pace with growth in the size of the labour force. The range of estimates, which has widened as the week’s progressed, stands between +70k to +190k.

Average hourly earnings, meanwhile, are set to have risen by 0.3% MoM, and by 3.7% YoY, both rates which, while a little hotter than the FOMC would ideally like to see, are unlikely to spur much by way of concern over upside inflation risks stemming from the labour market. In the household survey, unemployment is set to remain at 4.2%, with labour force participation also seen steady, at 62.6%.

On the whole, the report is highly unlikely to be a gamechanger for the FOMC, who remain firmly in ‘wait and see’ mode, seeking greater clarity on the economic outlook, and to ensure that inflation expectations remain well-anchored. For markets, while there may be some knee-jerk risk-off on a soft print, it’s a move that I’d be keen to fade, given the potential for both trade- and weather-related negative skew in the figures.

Elsewhere, today, we also get the latest Canadian jobs figures, plus a final revision to Q1 eurozone GDP, and a whole bunch of ECB speakers to boot.

Once all that is dealt with, I think we’ll all be ready to enjoy a well-earned cold beverage or three, and put our feet up for the weekend.