Markets Cheer Solid NFP, Tariff Fallout Appears Milder Than Feared – Action Forex

Risk assets are rallying to end the week as investors take comfort in the stronger-than-expected US non-farm payroll report. The data helped to offset recession concerns after surprise Q1 GDP contraction. While the GDP miss raised alarms, it was largely attributed to a surge in imports ahead of the April tariff changes, rather than a fundamental decline in domestic activity. Supporting that narrative, both the ISM Manufacturing survey and today labor data suggest that the early effects of tariff uncertainty may be more muted than initially feared.

Adding to the relief, there are tentative signs that trade negotiations, even with China, are inching forward. Beijing has acknowledged the possibility of returning to the table, though it reiterated that all unilateral US tariffs must be lifted. This narrative of progress, however incremental, has helped support equities and risk-sensitive assets.

In the currency markets, pro-risk currencies like the Aussie and Kiwi are outperforming today on improved global sentiment. Meanwhile, Dollar is under mild while Sterling and Loonie are also lagging. Euro finds modest support after a surprising acceleration in core inflation.

In Europe, at the time of writing, FTSE is up 0.94%. DAX is up 2.06%. CAC is up 1.83%. UK 10-year yield is down -0.049 at 4.449. Germany 10-year yield is up 0.049 at 2.496. Earlier in Asia, Nikkei rose 1.04%. Hong Kong HSI rose 1.74%. Singapore Strait Times rose 0.33%. China was on holiday. Japan 10-year JGB yield fell -0.013 to 1.262.

US NFP grows 177k in April, wage gains losing momentum

The US labor market delivered another month of solid job creation in April, with non-farm payrolls rising by 177k, beating forecast of 130k. However, the initial blowout March figure was revised down from 228k to 185k, tempering some of the headline strength.

Still, both readings came in above the 12-month average monthly gain of 152k, signaling continued resilience.

Unemployment rate held steady at 4.2%, in line with expectations, while labor force participation ticked up slightly to 62.6%.

Yet, wage pressures appear to be softening. Average hourly earnings rose just 0.2% mom, below the 0.3% mom forecast, bringing the year-over-year growth rate to 3.8%.

Eurozone core CPI jumps to 2.7% as services inflation accelerates

Eurozone headline CPI held steady at 2.2% yoy in April, slightly above expectations of 2.1% yoy. CPI core, which excludes energy, food, alcohol & tobacco, surged sharply from 2.4% yoy to 2.7% yoy, surpassing the forecast of 2.5%.

The acceleration in services inflation to 3.9% from 3.5% drove much of the upside surprise, highlighting persistent domestic price pressures. Meanwhile, energy prices fell more steeply at -3.5%, and non-energy industrial goods inflation was stable at 0.6%.

Eurozone PMI manufacturing finalized at 49.0, at risk if Chinese exports divert toward Europe

Eurozone manufacturing sector showed further signs of stabilization in April, with PMI Manufacturing Index finalized at 49.0, its highest reading in 32 months. Output growth was a standout, reaching a 37-month high at 51.5, reflecting a modest but encouraging improvement in activity.

Country-level data revealed a mixed picture, with Greece (53.2) and Ireland (53.0) leading the expansion, while Spain (48.1) and Austria (46.6) lagged behind. Notably, Germany (48.4) and France (48.2), two core economies, continued to show.

According to Cyrus de la Rubia at Hamburg Commercial Bank, the stabilization is somewhat unexpected given recent shocks, but optimism is holding up, aided by prospects of ECB rate cuts and the announced increase in EU defense spending.

Still, challenges remain. While manufacturers expanded margins in April, thanks to falling input costs and faster price hikes, this may not be sustainable. The risk of Chinese goods being redirected to Europe due to US tariffs could intensify competitive pressures, particularly on price.

Australian retail sales grow 0.3% mom in March, but volumes flat in Q1

Australian retail sales rose by 0.3% mom in March to AUD 37.28 billion, slightly below expectations of 0.4% growth.

According to the ABS, food-related spending, particularly in supermarkets and grocery stores, was the main contributor to the uptick, with food and miscellaneous retailing both rising 0.7%. Clothing-related sales also edged higher, but household goods retailing was flat.

However, the broader trend is subdued, with retail sales volumes—adjusted for inflation—essentially flat over Q1. ABS Head of Business Statistics Robert Ewing noted that the lack of growth reflects weaker household appetite for discretionary goods, following a boost in spending late last year due to heavy promotions.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.1257; (P) 1.1299; (R1) 1.1332; More…

Intraday bias in EUR/USD is turned neutral with current recovery. On the downside, below 1.1265 will resume the correction from 1.1572 short term top. But downside should be contained by 38.2% retracement of 1.0176 to 1.1572 at 1.1039 to complete the correction. On the upside, break of 1.1424 will bring retest of 1.1572 high next.

In the bigger picture, rise from 0.9534 long term bottom could be correcting the multi-decade downtrend or the start of a long term up trend. In either case, further rise should be seen to 100% projection of 0.9534 to 1.1274 from 1.0176 at 1.1916. This will now remain the favored case as long as 55 W EMA (now at 1.0792) holds.