Daily Agenda: Brexit Jitters Rise
FIFA headquarters raided; Wal-Mart to experiment with Uber, Lyft delivery; U.S. jobs report comes in below forecast.
In a signal that investors remain wary of a possible Brexit in the coming weeks and a potential rate hike by the Federal Reserve, the yield for Treasuries with a two-year maturity rose to its highest level relative to UK equivalents since 2000. With so much at risk for the June 23 election, each side of the debate has made arguments regarding the potential impact of a decision with Chancellor of the Exchequer George Osborne yesterday proclaiming that a departure from the EU would cost the U.K. 400,000 jobs. Despite lingering concerns, the pound sterling has remained relatively unscathed until recently but a pullback versus the euro today signals that gains in some polls by the movement to leave the EU have rattled some speculators.
U.S. jobs report comes in much lower than forecast. U.S. Department of Labor data for the month of May revealed only 38,000 new entries to payrolls, versus consensus economist forecasts for more than 150,000. Headline unemployment, calculated through a separate methodology, contracted to 4.7 percent, compared to a prior 5 percent.
Swiss authorities raid FIFA. Multiple media outlets reported today that authorities acting at the behest of Switzerland’s attorney general raided the headquarters of the Fédération Internationale de Football Association. The governing body for world soccer has been at the center of corruption probes in multiple European nations in recent years.
Wal-Mart to deliver. In an announcement today, executives at Bentonville, Arkansas–headquartered Wal-Mart Stores confirmed that the world’s largest retailer will begin experimenting with delivery service for online shoppers. This move comes in the wake of an earlier foray that was specific to Sam’s Club membership discount stores. The company plans to deploy drivers from shared-rider firms Uber and Lyft in two cities during the test, as it considers increasing competition from online-only rivals such as Amazon.
Portfolio Perspective: ECB Signals More Easing on the Way — Jürgen Odenius, Prudential Fixed Income
Yesterday’s decision by the European Central Bank to refrain from adding to its current stimulus and keep policy rates unchanged was widely expected. As a result, the market reaction was muted and the euro was broadly unchanged.
ECB president Mario Draghi went to great lengths to emphasize that based on earlier policy decisions, further policy easing was still in the pipeline. Specifically, the ECB will set in motion on June 8 its corporate sector purchase program. Furthermore, as part of its ongoing efforts to provide ample liquidity to the banking system, the TLTRO-II liquidity operation will be held on June 22nd.
The ECB’s revisions of its macro forecasts were minor, presumably in an attempt to prevent any market speculation that improving fundamentals may warrant an earlier than expected change in the ECB’s hitherto highly accommodative policy stance.
Specifically, despite a fairly sizable increase in energy prices, the ECB nudged up its 2016 headline inflation forecast by only 0.1 percent to 0.2 percent, while holding its forecasts for subsequent years broadly unchanged. Similarly, the ECB increased its 2016 real GDP growth forecast by only a minor margin to 1.6 percent.
Jürgen Odenius is the head of macroeconomic research for Prudential Fixed Income in New York.