It has been an uneventful session, with only the UK jobs report on the agenda. The data was mixed, but overall softer than expected as the unemployment rate remained high and the initial estimate for April showed payrolls falling by 100K. However the ONS issued a warning saying: “The April 2026 estimate should be treated as a provisional estimate and is likely to be revised as more data is received next month. The early April estimate is more uncertain due to the change in tax year.”
Even though Trump has canceled a large-scale military strike against Iran, there is still some caution in the market. For context, he said the suspension was at the request of Gulf leaders to allow peace talks to continue. He said now that the strike has been called off, there are ‘good chances’ of an agreement.
The US Dollar recovered yesterday’s losses as the US-Iran standoff, persistently high oil prices, weak US data and the possibility of a Fed rate hike remain supportive of the Greenback. These forces are now weighing on markets more broadly after Treasury yields rose above March highs on Friday. We may have reached a tipping point where the only solution is to quickly reopen the Strait of Hormuz.
In the US session we get the Canadian CPI report. Headline CPI is expected to expand to 3.1% from 2.4% previously, while the more important trimmed-mean CPI is seen unchanged at 2.2% y/y.
We recently got the Canadian employment report and the data once again showed a soft labor market. Governor Macklem stressed that although the Bank “will be watching the immediate impact of the war on inflation”, if it spreads to the wider economy, “a sustained increase in the policy rate may be required”. The central bank will likely keep an eye on the trimmed-mean CPI for signs of spillover.
Finally, we have the Fed’s Waller speaking. I think it’s worth highlighting this today as we get closer to the June FOMC meeting and it will involve SEPs and dot plots. These meetings are generally more important for policy signals.
The Fed’s Waller has been a great “leading indicator” for Fed policy this cycle and I think the market will react in a big way if he changes his stance now. He is concerned about the labor market but the data points to flexible conditions. The biggest stress now is on inflation and if he turns his attention back to that, it could be taken as a signal of a possible rate hike.
