Crossfire hurricane ahead of US jobs report
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Hey everyone, it is Thursday 5th of June 2025 coming at you from Geneva in a hotel room after spending a couple of days here in Switzerland on Tuesday in Zurich and yesterday here in Geneva presenting to some Saxo clients and some members of the Danish Swiss Chamber of Commerce. I had a really great couple of events. I was presenting on the new Trump 2.0 era and how it changes everything.

touching on many of the themes we've been talking about for quite some time here on the podcast. It was a really wonderful audience, and I thank everyone who did attend, and I'm sure a couple of you may be actually listening on the podcast today, so a personal thanks to those who came and all the engagement and discussions after the presentation. It was really good stuff. All right, let's get to markets, and there's just so much going on here, and we're not even reached tomorrow when we have the nonfarm payrolls, which I think is an important thing

Of course, event for technical reasons, for potential trigger reasons for how the market feels about the U.S. economy, but a couple of other issues that I think are simmering, to say the least, at the moment. Starting off yesterday, we had that weak ISM services number out of the U.S., 49.9. We had something like 52 expected, and it was well above 50.

in April. The new orders component there dropping below 47, so pretty ugly there, some pretty ugly momentum in the ISM services. And then the ADP private payrolls number at only plus 37k on the month of May. This was the worst number except for a blip back in early 2023, I believe it was, and essentially since somewhere back in 2022. So obviously this number of concern

Trying to find correlation with non-farm payrolls change is sometimes difficult, but it was a disappointment. And the twin sort of, or the double whammy here sort of set us up for a considerable rally in U.S. Treasuries. The whole yield curve dumping lower. Two years, about eight basis points. Out at 10 and 30 years, more like nine basis points. So a strong Treasury rally. You know, the classic, you know, bad news is risk, or not risk gone, but bad news being good for Treasuries.

And we're at the lowest levels basically since early May across the curve there. The reaction elsewhere, of course, we have, I don't have much to say on equities. I think we're just waiting for animal spirits to shift here. I've tried to say that recently that we might see some consolidation and risk sentiment. We're just not really seeing that. So let's see when we're getting some pretty big moves elsewhere, especially in treasuries, and it hasn't really triggered something yet.

inequities just yet. So I think I'll comment when next time we see something either some strong new highs or some sense that news has meaning. And like I said, I think in the previous podcast, that the interesting thing here is if we get this pattern of weaker U.S. data, that, you know, how is bad news read? Is bad news read as, hooray, the Fed cuts, this is good? Or is bad news read as, oh, no, we're going to recession, that will have an impact on profits.

For now, let's look elsewhere at the reaction function again, chiefly into a foreign exchange where, no big surprise, we saw the dollar weakness coming in. And it's just been really treacherous stuff trading the dollar in recent days, really choppy back and forth. You get a break higher above 114, and then it just retraces nastily back below in euro-dollar terms. Dollar-yen was pushing towards those support levels down to the low 142s.

Then we got that April jolts job survey, the worthless data point. This is a terrible survey with very low participation. It's often heavily revised. It's for a prior month to the key stuff we're focusing on, which is the May data. And yet you saw a dollar in backing all the way up to 144 plus. And there was some nervousness in the case of Japan ahead of last night's 30-year forecast.

JGB auction. This was an interesting auction because, as we noted previously, the 40-year auction, for the first time in a very long time, they actually lowered the auction amount because they recognized that demand might be a bit tepid for such a long-dated JGB. And indeed, even though the auction amount was lowered, the demand was still a little bit weak there.

The demand was noted as weak again overnight for the 30-year. However, it was within range. It was only the weakest since a couple of years ago. And despite that, JGB is following their U.S. counterparts with a very considerable yield drop.

Long story short, so Dalian backed up badly on the U.S. data, plus maybe some concern ahead of that auction. And then from $144, well above $144, we slam all the way back down to $142.5 overnight. And then that loss gives way to we're well above $143 at one point this morning. So it's really dicey trading this auction.

the Dalian exchange rate. My general outlook would be lowers the direction I'm looking medium term, but we need to probably see a combination of lower U.S. yields, check on that front, and weak risk sentiment, and we're not really a check in that category. As well, we have this difficult new twist on things we've seen in recent months that

And there's no sort of clear signal in the noise. There has been at times, but not recently, in that does a strong U.S. Treasury market, in other words, yields coming down in the U.S., suggest that people are happy to buy Treasuries. Therefore, we don't need to worry about this whole fragile U.S. Treasury market issue, etc., etc. So I think that there's a lot of crossfire and cross signals in this market.

All right, I want to move on to another news item, pretty interesting. So Germany coming out with a $46 billion tax package for corporates. It sounds pretty solid on the headline. There was a very positive reaction to that. When you start looking into the details, it's pretty darn cautious stuff, I would say, and it's just really remarkable. They make the splash with the trillion euro announcement as they're heading into the election.

Or post-election as well, of course, to get that passed. And this stuff is just really very modest. And it's very slow in time terms. So a couple of details. 30% write-offs for so-called movable assets and some kind of deductions for EVs, etc.,

and then a lowering of the tax rate and that's the really good stuff you like to hear if you're looking at the dax and german companies and yet it's not scheduled to start until 2028 where they will progressively lower the corporate tax rate from 30 to 25 percent over a number of years

Very, very incremental stuff here. Let's compare that with the Trump Tax Cuts and Jobs Act that saw the U.S. corporate tax rate lowered from 35 to 21 and basically immediately. And 46 billion from Germany, which of course is far smaller.

The U.S. economy, we're talking about a four-something trillion euro economy versus the U.S. 30 trillion economy. But still, 1.5 trillion was the total amount for the Trump Tax Cuts and Jobs Act. A couple, just saw this morning, actually, German factory orders for April coming in way better than expected. Somewhat volatile data series, but it is interesting. Factory orders would theoretically be a bit of a leading indicator on German industry coming back.

But plus 4.8% workday adjusted for year-on-year is kind of interesting. And then finally on Germany, we have Chancellor Metz, who is over in Washington, D.C. today meeting Trump. It's always very interesting to see the personal chemistry or lack thereof or what kinds of exchanges develop. Of course, we're in the midst of these trade negotiations between the U.S. and Europe. Oh, and actually, one last thing on the sort of, you know, the

Fading of U.S. exceptionalism theme and the potential for Europe to attract more investment. FT leading with a big story on big investors are shifting away from U.S. markets. And they quote a couple of large pension funds. There was one in Canada, another one, Alliance Bernstein.

about intentions to reallocate their portfolios away from the U.S. and particularly into Europe. There was another commenter they found, however, saying that, look, why are you looking at Europe? It's got sclerotic growth and high levels of regulation. So, yeah, you know, the jury is out at the moment. As long as risk is on, I think the U.S. is having a hard time underperforming that badly here. So, yeah,

We need to see a turn relative to this pretty incredible comeback we've seen in risk sentiment since the April lows. And on that front, I mean, we're seeing some signs that Trump is sort of saying we need to get these best offer trade deals from our trading negotiations in-house soon.

He's saying Xi Jinping is a hard person to deal with. That's been the latest quote. You're seeing China doing things like teasing purchases of hundreds of Airbus jets as a clear snub to Boeing, a snub to the U.S. And then on the rare earths issue, which is possibly behind what, you know, the recent Trump accusations of China not playing fair relative to whatever was agreed in Switzerland.

There's been a number of signs that rare earth supplies are not being made available at a pace that will allow industry, key industries to continue production at current rates if the supply doesn't pick up. Some sources indicate this is simply because with new Chinese rules that the Chinese companies that produce rare earths have to, you know,

makes some difficult bureaucratic procedures to declare whatever the amounts of the rarest are producing, and there's some bureaucratic stuff with them having to register this with the Chinese authorities.

and therefore that is what is holding things up, therefore bureaucracy. Others would say that's just an excuse and clearly China is drip feeding the market to make it clear to the rest of the world that it has this leverage and that leverage includes into Europe where there's ongoing negotiations about things like EV prices, etc.

a key issue here in the overall trade negotiations. That's the one big one. The other big one, of course, is the U.S., the state of the U.S. economy, as indicated with all these latest job figures. Today, we'll get the weekly jobless claims out of the U.S. And just a note there, last, we've had a number of these very small spikes to

of the weekly claims to new highs relative to, not new highs, but to high levels relative to the sort of the low background levels. But if you look at the general trend, the four week moving average is actually its highest in quite some time. And another print this week, I think starts to set this data point up as a key one from week to week. So we'll be looking at it today. It was 240K last week, expected to mean revert a bit lower today.

But anything well above 230, 235 is starting to indicate, I think, to this market a pattern. And it will be seized on a little bit. But, of course, tomorrow is the real deal with the monthly roundup of the May jobs numbers. And then I think I want to end on the other really big issue here. And I think this one is particularly large because it feels like something is crumbling within the Republican Party, if that's what you want to call it.

in the U.S. around the fate of the so-called Big Beautiful Bill. Not only is it having a hard time within the Senate, but there's a big PR crossfire starting up from all corners of those that support the Republican Party. Elon Musk is out all guns blazing against this thing, saying that the bill is, quote, a disgusting abomination, unquote. I think we all know that Musk, if he could have his, his, uh,

His way would do something like Argentina's melee and just completely blow apart the government finances to get things into balance again.

But even House Republicans that passed the bill, including the likes of MAGA faithful Marjorie Taylor Greene, are saying they're having regrets that they even signed this thing. So even if the Senate is able to come to agreement on something, the House appears to be in a different place, and the House only passed this thing by one vote and wouldn't have been able to pass it by that one vote if two Democrats hadn't died in the meantime and were unable to vote. You also have...

Steve Bannon, how much pull does he have? I don't know. He has some kind of pull as a commenter on the whole sphere, saying that it's time to tax the rich as the only way out here. Actually, something Trump briefly mentioned at one point when there were discussions about all these tax cuts and jobs, the tax cuts for

for individuals that are scheduled to be phased out after the end of this year. That's what's up for renewal. He teased the idea that maybe for the very highest earning Americans, I can't remember if it was two, two and a half million dollars and higher, that maybe they would revert back to the old schedule, which was several percent higher. So very interesting to see where this all ends up. And I think it's somewhat unpredictable because Trump is very happy to put his ear to what is going on here and change his mind in rather nimble fashion.

So we have the big beautiful bill. What on earth is the fate of that? And the debt ceiling itself, this could become a huge negative for growth if something materially different is developing. Some are positioning this as really critical stuff because if you pass anything that resembles this big beautiful bill,

It is sort of cementing the sort of the perma deficits, which means we have to come up with some other ways to sort of force grow the U.S. economy to keep it sort of running at full speed to avoid the debt from swallowing everything here. So and other extreme measures to to keep the U.S. Treasury market functioning and the U.S. government funded.

So really critical deal. There's the trade stuff. And then there's just where is the U.S. economy at present. So three big issues all swirling all at the same time. Feels like markets in some cases aren't really listening if I'm looking at the equity market. And the case of foreign exchange is just bobbing and weaving back and forth and making itself a thorough nuisance for traders to figure out if we're going to properly trend lower here in the U.S. dollar.

All right, that's a closeout for today. I am going to try to put together a full podcast slide deck for tomorrow's podcast when I'm back at HQ and have not just myself on the podcast, so you can hopefully look forward to that. And yeah, be very careful out there, and we'll be back tomorrow with the next Saxo Market Call.