Source: Caixin.
① The May ADP nonfarm payroll data released on Wednesday showed unexpectedly weak results, further confirming signs of a cooling labor market in the United States. ② The global wave of easing has already arrived, with the Bank of Canada announcing a 25-basis-point rate cut overnight as expected, marking the "first cut" among G7 countries. ③ According to the FedWatch tool from CME Group, traders now believe there is over a 70% chance of a Fed interest rate cut in September.
The 10-year US Treasury bond yield, known as the "anchor of global asset pricing," fell further to a two-month low on Wednesday, with five consecutive trading days of weakness. The US May ADP non-farm employment report, which was released on Wednesday and was weaker than expected, further confirmed signs of cooling in the US labor market. At the same time, the global easing wave has already arrived, with the Bank of Canada announcing an expected overnight rate cut of 25 basis points to complete the "first cut" of G7 countries. All of these factors have driven the continuous rebound of the US bond market.
Market data shows that overnight yields on US bonds of all maturities fell across the board. Among them, the yield on 2-year US bonds fell by 4.8 basis points to 4.731%, the yield on 5-year US bonds fell by 5.2 basis points to 4.299%, the yield on 10-year US bonds fell by 5.2 basis points to 4.28%, and the yield on 30-year US bonds fell by 4.4 basis points to 4.433%.
From a daily perspective, this is already the fifth consecutive trading day of significant decline in the 10-year US Treasury bond yield, which has plummeted by more than 30 basis points in just one week.
The continuous decline in US bond yields, as well as the soaring of technology stocks represented by Apple, has further fueled the rise of the US stock market in recent times.$NVIDIA (NVDA.US)$NVIDIA and Apple both rose on Wednesday, setting their 25th and 13th closing highs since 2024 respectively. The market value of NVIDIA and Apple both exceeded $3 trillion overnight.$S&P 500 Index (.SPX.US)$Concentrated in technology stocks, both the NASDAQ Composite and the S&P 500 surged on Wednesday, setting their 25th and 13th closing highs since 2024 respectively.$Nasdaq Composite Index (.IXIC.US)$The market value of NVIDIA and Apple both exceeded $3 trillion overnight.
The May ADP employment report released on Wednesday is the latest data suggesting a slight relief in the tense situation in the US labor market, which may push the Federal Reserve to start early rate cuts later this year. Earlier reports on Tuesday showed that the number of job vacancies in the United States fell to a more than three-year low in April.
Specific data released by the American automatic data processing company (ADP) shows that the number of private sector employees in the US increased by 152,000 in May, the smallest increase since February and significantly lower than the market's earlier estimate of 173,000. Data for April was revised down from 192,000 to 188,000.
"We see economic data slowing slightly, and the impact is that you will see slightly less pressure on interest rates, which is quite good news for the bond market," said Jack Janasiewicz, portfolio manager of Natixis Investment Managers Solutions.
At present, many industry insiders have predicted that the increase in non-farm employment data on Friday may be far lower than the median forecast of economists, which is 190,000. Some traders say that the so-called "whisper numbers," private predictions among professionals, suggest that non-farm employment in May will increase by only about 120,000.
"Economists' forecasts are also very inconsistent, with some expecting between 110,000 and 130,000, which seems to be a more likely "landing point" after a series of slightly weak employment data this week," said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott.
In addition to economic data, the global easing wave this week is undoubtedly contributing to the recovery of the stock and bond markets.
The Bank of Canada announced its rate decision for June on Wednesday, announcing an expected cut of 25 basis points to the benchmark interest rate to 4.75%. This is a highly symbolic moment-Canada has become the first G7 country to cut interest rates in this round of the global monetary cycle. As widely expected by the market, the European Central Bank will launch this round of rate cuts tonight.
Many analysts also expect that the Bank of England, which will hold a rate meeting in two weeks, may follow in the footsteps of the European Central Bank and the Bank of Canada.
It is easy to foresee that with central banks around the world taking rate cuts, this is likely to put pressure on the Federal Reserve. The Federal Reserve will hold a monetary policy meeting starting on June 11 to discuss the next interest rate moves. Although the Federal Reserve is unlikely to make a rate cut this month. But the current easing measures by non-US central banks may prompt the Federal Reserve to start paying attention to the rate cut window later this year...
According to the FedWatch tool from the Chicago Mercantile Exchange (CME), traders now believe that the probability of a rate cut by the Federal Reserve in September has exceeded 70%, an increase of one percent from one day ago, which was about 60%. At the same time, the interest rate swap market has fully priced in two rate cuts by the Federal Reserve this year.
It can be said that while the Federal Reserve is in a "silent period," the "rate cut faction" in the market has quickly occupied various main positions in the rate game battlefield without any hawkish comments from Fed officials. This is largely driven by the common factors of weak US data, the global easing trend, and the sharp drop in oil prices.
Of course, whether this sudden surge in the expectation of a rate cut by the Federal Reserve this year can withstand the test of time remains to be seen in the further observation of the next week (non-farm payrolls, CPI and Fed decisions).
Editor/tolk