Focus Shifts To US NFP Report
Financial markets were quite volatile this week amid political tensions in Italy and Spain. Yesterday, leaders of Italy's anti-establishment parties revived coalition plans, apparently ending three months of political turmoil. The populist parties Five-Star and League formed a government and received the approval from the president. Meanwhile, Spanish Prime Minister Mariano Rajoy lost a vote of no-confidence on Friday with 180 representatives voting to force him out of government, 169 voting against the measure and one abstention.
This week, the euro fell to 10-month low versus US dollar, while bond yields in Spain and Italy reached their peaks. Italian 2-year yields peaking above 2.7%. The US imposed import tariffs on steel and aluminum from the EU, Mexico and Canada. Focus will now be on the retaliatory measures that these countries have lined up and whether that in turn triggers a larger and quite unnecessary trade war.
Markets await US jobs report. Nonfarm payrolls (NFP) are expected to show the US economy added 189.000 jobs in May. Economists forecast the jobless rate to remain steady at 3.9% (a 17-year low). The main focus will be on average hourly earnings as the Fed keeps an eye on wage inflation. On an annualized basis, the increase in average hourly earnings is expected to accelerate to 2.7% in May, from the prior 2.6%.