The Fed looked past a tepid Q1; April's jobs report was solid, not spectacular; Macron and Le Pen crossed swords before Sunday's election; oil and iron took a beating
"I will express myself in French, because slowly but surely English is losing importance in Europe."
The Fed: Hawk talk The press release announcing the FOMC's decision last Wednesday to keep its target rate range unchanged referred directly to the past two weeks' downbeat economic news about GDP growth, consumer spending, and productivity – saying it expects Q1's slowdown " to be transitory". That, along with references to continued interest in raising rates as soon as conditions permit, drove the fed funds futures market to behave as if the odds of a hike at the end of the June 13-14 meeting are 97.5%.1
US jobs: Solid, but… Nonfarm payrolls rose a better-than-expected 211k for April and the monthly unemployment rate also beat expectations, at 4.4%, lowest in a decade. Good news also on underemployment: the rate fell to 8.6% – lowest since November 2007, when the Great Recession kicked in (the peak rate, 17.1%, was reached two years later, in October 2009). But average hourly earnings rose 2.5% year-on-year, lower than last month's revised figure, and average weekly hours worked rose only fractionally since March, to 34.4. The closely-watched labor participation rate fell to 62.9%, as demographic trends and seasonal effects worked against a generally improving environment for workers.
France: En garde! The swords came out during the debate between Marie Le Pen and Emmanuel Macron ahead of Sunday's runoff election. Both gave as good as they got in an unusually combative conversation, but the opinion polls tended to give the win to the 39-year-old centrist. But burned by previous failures in polling predictions, suspense remains high – focusing on the voter participation rate in light of disillusionment with both candidates. Some observers believe a low turnout would favor Le Pen; by Monday we'll have an answer.
Oil and iron: Slippery slope New attention is focused on sagging crude oil prices – especially U.S. West Texas Intermediate (WTI), which briefly reached as low as $43.76 on May 4. Why WTI? The source of the downward spike is the U.S., where shale oil production, adding to an upswing in offshore production, is thwarting OPEC's attempts to keep prices in the $50 range – a threshold already broken twice this year. At the same time, a key reference price for iron ore (spot iron ore delivered to Qingdao, China) has fallen some 35% since late February, to $61.73 per metric ton (iron is priced in US dollars). Reasons cited for the decline include excess supply in the face of slowing demand in China as financial liquidity tightens; iron is a major input to real estate construction. The twin declines are refocusing attention on commodities overall; concern about deflation hasn't completely disappeared.