The Daily Update - Non-farm payrolls

Today’s May non-farm payroll release showed 223,000 jobs added which was above expectations of 190,000 jobs created although the previous month’s figure was revised down by 5,000 to 159,000. The unemployment rate edged lower to 3.8% versus the prior month’s reading of 3.9% and the participation rate eased 62.7% from 62.8%. Average hourly earnings were slightly above expectations at 2.7% yoy compared to the previous month’s figure at 2.6% yoy.

At the time of writing, Treasuries were trading a little weaker in response to the numbers but had already conceded some ground on speculation about Trump’s earlier tweet about ‘looking forward to seeing the employment numbers at 8:30 this morning’. We favour portfolio positioning at the long end of the curve and with a bias to higher quality credits as we believe the Fed is ahead of the curve.

May proved an eventful month for markets as crises in Argentina, Turkey and Italy have played out. Adding to this uncertainty, the US has continued with its hard-line trade policy opting to put tariffs on Chinese goods ahead of the trade discussions and a hoped for deal on NAFTA is yet to materialise. Trade tensions between the US and Europe have escalated: not only is there disagreement over the US withdrawal from the Iran pact, the imposition of sanctions on Iran and its knock-on effect on Europe but also the announcement at month end of the removal of the US exemption of tariffs on aluminium and steel for the EU, Canada and Mexico. Protectionism is not good for growth and presents a significant downside risk. Against such an uncertain backdrop we favour positioning in higher quality credits in creditor nations.

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