05 June 2020 by jbchevrel
Today was an impressive risk-on session driven mostly by (hugely) better than expected labour market data in the US. On top of that, softer US-China rhetoric, prospects of further US fiscal stimulus, and technicals kicking in in the rates markets exacerbated the tightening of CIS spreads. The Europe-US relative value remains in a tight range, today Main giving back to CDX the outperformance of yesterday (ECB PEPP extension by more than expected + German fiscal stimulus add-on). Regarding the former, today NFP unexpectedly (to put it in an euphemistic way) rose 2.5mn in May. That figure was substantially above expectations, suggesting accelerating re-hiring activity during the first half of the month (the consensus was -7.5mn). Now, Average Hourly Earnings have declined -1.0% m-o-m (Consensus: +1.0% m-o-m) after a sharp +4.7% m-o-m increase in April, driven by an influx of low-wage workers. The unemployment rate unexpectedly fell to 13.3% in May from 14.7% in April, below expectations (the consensus was 19%). Altogether, today’s report suggests the labor market trough took place between April and May but was much shorter than economists and market participants had expected. That increase was driven by leisure and hospitality (+1.2mn), construction (+464k), retail trade (+368k) and health & social assistance (391k), all of which had displayed big declines over the March-April. The industry composition of employment gains in May relative to losses in March and April indicates that many workers let go during the early weeks of the pandemic were called back as states began to re-open and PPP became more widely disbursed. State & Local employment, however, continued to decline rapidly, down -571k during May after a -964k decline in April. State and local government employment may remain exceptionally weak given falling revenues and restrictions on balanced budgets over the medium term. That will increase pressure on Congress to provide additional federal support for state and local governments in any further stimulus package.