Week in Review: June 4, 2021

Equity markets ended the week higher, thanks largely to the release of the May employment report. While the report marked the second consecutive month that nonfarm payroll additions failed to meet consensus expectations, in many ways it was a “goldilocks” report. The uptick in hiring was enough to assuage concerns about the state of the labor market following April’s disappointing report, but not so strong as to inflame ongoing concerns about inflation. Bond markets reinforced that notion as the 10-Year Treasury fell 0.08% on Friday.

The Fed announced that it will sell the corporate bonds and bond ETFs that it purchased last year as part of its efforts to support financial markets. The move marks a very modest step in normalizing monetary policy, given that the Fed only held $13.8B in corporate bonds and bond ETFs at the end of April, representing a mere 0.2% of the $7.78T of total assets on its balance sheet. The Fed expects the sales to be “gradual and orderly” and conclude by year end.

US oil prices reached their highest level since October 2018 thanks to improving demand and continued production discipline from OPEC. On Tuesday, OPEC announced that it will stick to its April plan to gradually restore 2.1mbd of supply by the end of July. In 2020, in response to collapsing demand, OPEC and Russia (OPEC+) initially cut production by 9.7mbd, before easing to 7.7mbd and then 7.2mbd. After restoration of the 2.1mbd by the end of July, production cuts will be at 5.8mbd, compared to pre-pandemic levels.