Global: After very hawkish testimony from the Fed’s Loretta Mester and Lael Brainard yesterday, which seemed to torpedo any vestigial notion of a September pause in rate hikes, it is surprising to see the extent of the US equity rally yesterday. That said, volumes again remained light, and you get the feeling that it wouldn’t take much to flip equity markets the other way. One possible catalyst for yesterday’s rally was the raised output decision by OPEC (see also our Commodity Feed’s note today on our Website, Think.ing.com). though as our award-winning head of Commodity Strategy, Warren Patterson, notes, this was not a particularly big deal, and the production quotas almost certainly won’t be met.

Another candidate for the recovery in market sentiment was the poor US ADP labour report. We get Non-farm payrolls (NFP) for May today, and the ADP is the least-worst input for forecasters for that number. The ADP showed job gains of only 128 thousand, well down on the 300 thousand expectation. For equities right now, anything that might be viewed as capping the Fed’s tightening could be viewed as supportive. So, therefore, weak macro data becomes positive for stocks. Today’s expectation for non-farm payrolls is a gain of 320 thousand (from 428 thousand in April), for the unemployment rate to tick lower by 0.1 percentage point to 3.5%, and for the wages growth rate to decline to 5.1% from 5.5%. Any deviation from these figures that shows the labour market hanging together better than this might well be negative for equities and vice versa. Treasury markets will likely follow equities today. Yesterday, US Treasury yields remained fairly flat following a couple of days of gains.

Currencies behaved as you would expect in a risk-on rally, and the USD softened against the AUD and EUR (the JPY not so much). Asian FX was mixed, with the IDR and CNY making ground but the KRW and PHP both sliding. Positive sentiment today should see the Asian pairs largely start off constructively, though ahead of payrolls, and with Mainland China, HK and Taiwan all out for vacation today, trading could be thin, which also may mean volatile.

South Korea: The Bank of Korea won’t have liked today’s inflation reading, which showed headline inflation for May rising to 5.4% from 4.8% in April, and the core rate of inflation rising to 4.1% from 3.6%. Both readings were higher than had been expected.  We are looking for a further 25bp of hikes in each of the next two quarters from the current policy rate of 1.75%. More data like this, and there will be an upside risk to that view.