US Economic Data – Entering a soft-patch
Friday’s NFP print surprised to the downside at 175k against 240k surveyed, the unemployment rate rose by 0.1% to 3.9% and average hourly earnings fell MoM by 0.1% to 0.2%. The miss in jobs was mostly driven by government positions, which added only 8k jobs as opposed to 62k on average over the past three months. The quits rate fell by 0.1% to 2.1%, below pre-Covid levels, signalling a looser labour market and lower wages ahead. The remaining data last week was mixed, as the employment cost index for Q1 surprised to the upside at 1.2% and ISM manufacturing prices paid spiked to 60.9. Consumer confidence and headline ISM indices fell. Studying Citi Economic Surprise Indices, we see that US data typically surprises to the upside in Q1, but then enters a soft path in Q2 and Q3. If the seasonality holds, we may see more weaker data ahead.

Fed – Powell – “Put” back in town
The Fed leaned dovish, as Powell confirmed hikes were “unlikely” and instead promised to keep rates restrictive for as long as necessary. The Fed statement acknowledged that progress had stalled recently, and the opening statement omitted to repeat that rate cuts are likely this year. The fact that hikes were taken off the table, paired with weaker data relieved markets, helping US rates to fall, equities to rally and the USD to weaken.

Eurozone Inflation – Stable and on track to cut
Euro HICP came in line and unchanged at 2.4% YoY, while core inflation fell from 2.9% to 2.7%. Services inflation finally fell after five consecutive months at 4%, to 3.7%. Goods disinflation continued, falling from 1.1% to 0.9%. The numbers keep the ECB on track to cut in June, widely anticipated by ECB speakers and the market. The next key data point to watch out for is the ECB Q1 wage indicator released on 23rd May, as the last puzzle piece for the ECB to commence their cutting cycle.

Algebris Investments’ Global Credit Team