Last week saw a reversal in two market trends that have been occurring for the past several months: increasing oil prices and treasury yields. Oil prices dropped almost 10%, from $73/barrel to $66/barrel, on optimism that supply concerns stemming from sanctions on Iran and Venezuela would be more than offset by output increases from Saudi Arabia and Russia, who are looking to keep prices in check.
The past week also saw 10-year Treasury yields dropping from 3.12% to 2.90% - a significant reversal of recent increases. The decrease in yield comes as the odds of a June Fed rate increase have increased. These two reversals could have significant implications from emerging market currencies and risk markets across the globe.
The holiday-shortened week ahead will be headlined by the May employment report. Expectations are for a 180,000 increase in payrolls and an unchanged unemployment rate at 3.9%, the lowest level since 2000. I will be watching the average hourly earnings portion of the report to see if wage gains are above the consensus of up 0.2% for the month and 2.6% year-over-year.
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