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MARKET RECAP 3rd MAY – 7th MAY 2021

Hey everybody.

How has your week gone? So we had the Bank Holiday here in the UK on Monday but the US market was up and running in the afternoon. Nethertheless there weren’t any real decent trading opportunities and like we always say… trading is a game of patience and discipline. Think of it as like fishing and sitting there patiently waiting for the right fish to come along. So what were the highlights this week? Let’s take a look!

We had the RBA rate statement in the early hours of Tuesday morning.

The RBA left the cash rate unchanged at 0.10% in the May monetary policy decision.

No changes to key policy with the only key takeaway being that the RBA is putting a firm timeline on its decision to shift the yield curve control focus. That said, the July meeting is when they will “consider” but given such communication, it is preempting the market that they should make a decision to shift to November 2024 bonds then.
Besides that, there isn’t much else as the RBA reaffirms its pledge to keep easy policy in place and also saying that they can do more if needed with regards to QE.
AUD/USD had a 10-pip whipsaw but little changed from before the decision/statement was released.
Later on the same night we had the jobs report for Q1 from New Zealand with some positive figures all round. More jobs added than expected, jobless rate lower despite a rising participation rate. This is a solid report indeed. the obvious caveat is that the data is from January to March and we are now into May, with economic indicators still doing OK in NZ but coming off the boil from the data during bounceback. Still, a good report.

Unemployment rate 4.7%

  • expected 4.9%, prior 4.9%

Employment change 0.6% q/q

  • expected 0.3% q/q, prior 0.6%

Employment change 0.3% y/y

  • expected -0.1% y/y, prior 0.7%

Participation rate 70.4%

  • expected 70.3%, prior 70.2%

Private wages excluding overtime 0.4% q/q

  • expected 0.3% q/q, prior 0.5%

Private wages including overtime 0.4% q/q

  • expected 0.4% q/q, prior 0.5%

Average hourly earnings% q/q

  • ¬†expected 0.7% q/q, prior 1.1%

On Thursday afternoon we had the Monetary Policy Report from the Bank Of England. Rates were left at 0.10% as expected.

The economic forecasts were upbeat and the BOE steered clear of any firm messaging about tapering although they were talking about slowing down QE purchases.
BOE chief economist Haldane voted to reduce the stock of QE purchases and there was also a technical change in which the BOE is slowing the pace of weekly bond purchases.
However, they reaffirmed that “as measured by the target stock of asset purchases, that stance remains unchanged”. Adding that the slowing in terms of QE purchases is not a significant change in policy and they are ready to step it up if necessary.
The pound dragged lower as cable fell to 1.3860 from around 1.3900 earlier going into the meeting and then bounced back to 1.3900.
There was a bit of a delay between the statement (which offered nothing) and the monetary policy report (which had more details), hence the pound suffered a whipsaw as it fell from 1.3900 to 1.3860 before recouping losses to bounce higher to 1.3930.
And Friday of course was Non Farm Payrolls being the first Friday of the month with numbers coming in much lower than expected at 266K when 990K were expected.
  • Unemployment rate 6.1% vs 5.8% expected
  • Prior unemployment rate 6.0%
  • Participation rate 61.7% vs 61.6% expected (was 62.8% pre-pandemic)
  • Prior participation rate 61.5%
  • Underemployment rate 10.4% vs 10.7% prior
  • Average hourly earnings +0.7% m/m vs 0.0% expected
  • Average hourly earnings +0.3% y/y vs +4.2% expected
  • Average weekly hours 35.0 vs 34.9 expected
  • Two month net revision -78K
  • Change in private payrolls +218K vs +933K expected
  • Change in manufacturing payrolls -18K vs +54K expected
  • Long-term unemployed at 4.2m vs 4.2m prior
  • The employment-population ratio, at 57.9% vs 57.8% prior (61% before pandemic)
This was a big surprise. The economy re-opened in a big way in April and other indications showed much better hiring than this. The revision to March is also troubling. The dollar is suffered on the headlines and rightfully so with 10-year yields quickly down 10 bps initially and now 6 bps to a one-month low at 1.50%. Equities loved it because it means cheap money and lower rates, with Nasdaq futures up 1.1%. Gold tacked on another $20 as the run continues.
Have a lovely weekend traders and we will catch you next week.
T & T

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