Fed’s expectations undergo significant shift in expectations for US jobs report
Baku, Azerbaijan, June 1
By Anvar Mammadov - Trend:
Existential pain in the European Union may be shifting to slow-burn mode, even as Spain’s prime minister left and the Italian populists are set to form a government after all, Head of FX Strategy at Saxo Bank John Hardy told Trend on June 1.
“Now the focus swings back to the US economy and Federal Reserve expectations, which have undergone a significant shift,” he said.
Spain has seized headline real estate from Italy as PM Rajoy failed confidence vote and resigned June 1, Hardy added.
“But despite the high drama, there was never really an EU-sceptic or existential threat angle to the situation, and Spanish yield spreads to Germany have been crushed back lower in line with the contraction in Italian spreads,” he said. “The short end of the Italian curve has seen the most significant moves over the last week, with the longer end a bit more reluctant to unwind the discount on Italian debt. It appears the populists have agreed on a new government now which could get Mattarella’s acceptance and move forward.”
“Today’s event risk of note is the latest May US jobs report as the market has undergone a fairly significant shift in expectations for the June Federal Open Market Committee meeting and beyond,” Hardy noted. “The market’s attempt to interpret the Fed’s focus on “symmetry” have resulted in a net dovish shift, perhaps as the market believes that the Fed is uncomfortable with the current state of expectations. But this may be the wrong spin on the situation as Powell may simply be more interested in shaking the sense that the Fed is “pre-committed” to any course of action to allow a more nimble policy response now that we have reached an important inflection point with inflation.”
“If this is indeed the case, then the Fed guidance will simply be made less explicit and could mean that each new data release from the US will have a much larger reaction function than we have been accustomed to,” he added. “What that could mean for today’s release is that strong data could trigger a larger reaction than somewhat weak data.”
“We also have a G7 meeting set for this weekend while Trump is doing his best to make the situation as uncomfortable as possible with new tariff threats against major geopolitical allies ahead of the event,” Hardy said. “Given his tendency to make threats and retract, the market is showing a diminishing response function to his bluster.”
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