U.S. Initial Jobless Claims were 229k for the week ending June 1st, just higher than the 220k estimate. And the prior week’s claims were revised higher by 2k to 221k. This is the third piece of soft U.S. labor data this week (following Tuesday’s JOLTS Job Openings and Wednesday’s ADP Employment Change) and sets the stage for tomorrow’s Change in Nonfarm Payrolls, the most widely referenced gauge on the labor market. The estimate is 185k, a 10k increase from the prior period. A big miss on the high side will lead to dollar strength (strong labor -> wage inflation -> consumer inflation -> Fed leaves policy rate unchanged -> incentive to hold USD) and vice versa for a miss on the low side.
The ECB cut its overnight rate today by 25 basis points (the ECB’s first cut in 5 years), delivering on a move that was widely expected. But today’s cut was not accompanied with the typical ‘dovish’ sentiment one might expect (it was a cut after all). Today the ECB pulled off a ‘hawkish cut’, cutting rates while at the same time increasing its inflation forecast. The novel approach has effectively swapped one uncertainty for an unequal amount of another uncertainty, leaving the long-term implied O/N rate slightly higher (April ’25 3.011% yesterday vs. 3.062% today post-cut), and strengthening the EUR. (Emerson might call this the deliverance that does not deliver).
The dollar is little changed overnight, the U.S. dollar index -0.01%. The biggest moves for the dollar against the G10 are bookended by a 0.15% gain vs. NZD and 0.18% drop against the CHF. Traders are on the sidelines today, working with their quants on Nonfarm Payroll simulations to prep for what could be a volatile day tomorrow. U.S. yields are little changed overnight.
Fed Funds Futures now imply a 74.8% probability of a 25 basis point cut at the Fed’s December meeting. That is up from a 52.1% probability only a week ago (May 29th). The Bank of Canada’s cut yesterday and the ECB’s cut today has shifted some back to thinking ‘maybe’ on the Fed.
