Week in Review: June 4, 2021
June 7, 2021
Recap & Commentary
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.
Economic Bullet Points
After April’s disappointing jobs report, investors were eager to see how labor markets performed in May. While May marked an improvement on an absolute basis (employers added 559K new jobs) on a relative basis the gains were disappointing compared to the consensus forecast of 650K new jobs. The combination of jobs added, plus a small decline in the labor force participation rate resulted in the headline unemployment rate falling from 6.1% to 5.8%, slightly better than the forecasted 5.9%. The decline in the labor force participation rate was somewhat surprising given the current number of job openings, and seemed to corroborate other surveys indicating that many employers are currently facing labor shortages. Leisure and hospitality was again the big winner, adding 292K jobs. Over the past three months, the sector has added 847K jobs, or 52% of all new nonfarm jobs during that period.
Both the ISM manufacturing and services surveys came in better than expected and up from April’s levels. Respondents to both surveys indicated that demand is currently very strong, however, shortages of raw materials and labor continue to constrain companies’ ability to meet the demand. The difficulty in attracting and retaining skilled labor was apparent in both surveys as employment growth slowed compared to the prior month.
Weekly jobless claims fell 20K to 385K, a new recovery low, suggesting additional labor market improvements.
The G-7 (US, Canada, France, Germany, Italy, Japan, and the UK) agreed that global corporations should pay a minimum tax rate of at least 15% in the countries in which they operate. The move marks an important step towards the goal of establishing a 15% global minimum corporate tax rate.
Market Indices Week of 06/04
|U.S. Bond Market
|10-Year Treas. Yield
|WTI Oil ($/bl)
The Week Ahead
- Consumer Inflation (CPI)
- Consumer Sentiment
- Small Business Optimism
- Trade Balance
- Weekly Jobless Claims