Daily Commentary BY THE CURVE TEAM –

US Employment Growth Keeps on Keeping On

4th of June, 2018

Another strong nonfarm payrolls report was the dominate theme on Friday night. However there continues to be plenty of noise emanating from a number of fronts with trade wars, Brexit ultimatums and financial stability concerns in Europe causing concerns.

The US economy keeps on keeping on when it comes to employment growth. The economy added a further 223,000 jobs in May, more than the 190,000 than was expected. The unemployment fell to yet another cycle low of 3.8% but wage growth remain elusive with the annual rate still hovering comfortably under 3%.

After the Italian political mess saw a brief repricing of expectations for Fed rate hikes, the solid employment data has the debt over 2 or 3 more hikes raging again. It has us set to see a hike next week with a follow up likely in September. It will be then up to the data to determine whether or not we get the final one in December.

The backlash for the Trump Administration after pushing forward with steel and aluminium tariffs was swift with a number of the G7 finance ministers issuing a solid rebuke over the weekend.

The Canadian Prime Minister also hit back and voiced his displeasure in no uncertain terms. He questions the US administrations motives, saying “The idea that the Canadian steel that’s in military vehicles in the United States, the Canadian aluminium that makes your fighter jets is somehow now a threat?” He then added that “The idea that we are somehow a national security threat to the United States is quite frankly insulting and unacceptable.”

Canada has also announced their own tariffs in retaliation and there is now a real risk of an escalation into a full blown trade war.

It is set to be a big week of data locally with the RBA also set to meet. We get further GDP partial indicators in the form of inventories and company profits. We also get the monthly inflation gauge and jobs. However the key data point today will be retail sales which are only expected to rise 0.3%.

The RBA will be the highlight tomorrow before we get the final print of GDP on Wednesday and the April trade balance on Thursday.

David Flanagan

Director - Interest Rate Markets