While the UK was shut last Friday for the 75th anniversary of VE Day, elsewhere markets were open. The April US non-farm payroll data was a key focus: 20.5m jobs were reported lost which was actually better than the survey (which looked for 22m jobs lost) and the unemployment rate spiked to 14.7%. However, a grim set of numbers had been factored in by the market and the S&P 500 and Nasdaq both closed up on the day and the week. The Nasdaq has now returned to positive territory on a YTD basis. In Europe, Moody’s ‘kicked the can down the road’ by not releasing a timetabled May 8th update on its ratings on Italy and Greece.
USTs bear steepened as the long end of the curve came under pressure as the announcement of greater upcoming issuance at the long-end pressured yields: This week the US Treasury is to issue USD42bn on 3 year notes, USD32bn of 10 year notes and USD22bn of 30 year bonds. The UST has also announced the issuance on 20th May of a 20-year bond for the first time since 1986. Yields on the 2-year UST reached a closing low on Thursday (0.14% Bloomberg generic 2 year) as the futures market priced in the Fed benchmark Fed Funds rate would go below zero. The UST 2 year closed the week -3bps at 0.16%. The UST 10-year yield rose 8 bps closing out the week at a yield of 0.69%.
The week ahead is likely to see investors focus on how trade relations continue to develop between the US and China plus how the gradual unwind of lockdown restrictions pan-out across Europe and the rest of the world. Equity markets have bounced strongly off their lows and are trading with a cautious tone in Monday morning European trading. Data-wise, German and UK Q1 GDP are key releases due this week with Bloomberg survey estimates suggesting the German economy could have shrunk 2.3% and that UK growth could contract 2.6% in QoQ. A number of US data releases are due out including April CPI and PPI data, April retail sales and industrial production, the NY Empire Manufacturing reading for May along with weekly jobless claims and the University of Michigan Sentiment Index. These are all expected to continue to reflect the grim effects of the ‘lockdown recession’ which the market is expecting hence commentary from a number of Fed speakers may be of more interest. Randal Quarles is set to testify before the Senate Banking Committee on Tuesday on supervision and regulation. Jerome Powell is also due to speak on a webinar on Wednesday and investors will likely be looking for any insights on negative rates given that is something the Fed has argued against in the past yet last week the Fed futures have implied the fed funds rate below zero next year. Other Fed speakers include James Bullard, Patrick Harker, Loretta Mester, Raphael Bostic, Neel Kashkari and Robert Kaplan.