Fed’s Beige Book cites ‘tight’ labour markets - MUFG

Derek Halpenny, European Head of GMR at MUFG, suggests that with the ADP employment report today followed by the non-farm payroll report tomorrow, it was with considerable interest that we noted the description of labour markets in the Beige Book report released last night for the FOMC meeting on 15th June.

Key Quotes

“While economic activity was said to be expanding “modestly”, the Beige Book also noted “tight labour markets were widely noted in most districts”. This we believe is very significant and from our recollection this is the first time the Beige Book has used the term “tight” and certainly the first time to use the term in the context of “most districts”. Clearly this is very strong evidence being presented to the FOMC that full employment has been surpassed.

The jobs data is of course always important but if the payrolls report tomorrow reveals a further uptick in the annual growth in hourly earnings, the evidence for the FOMC on increased wage pressures will be compelling, both anecdotally and in the economic data.

The US yield reaction and hence the dollar reaction to the Beige Book details has been muted perhaps ahead of the jobs report and then the speech by Chair Yellen next Monday. Global risk aversion has crept a little higher over the last day or two which may also be limiting the upside for US yields. ‘Brexit’ risks will also continue to lurk and have the potential to suddenly escalate – all of this will keep market participants sceptical of the Fed moving in June. That scepticism will need to recede in order to prompt a further push lower in EUR/USD from current levels.”