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It's jobs day, OPEC+ set to extend cuts, and protests continue in the U.S.


Non-farm payrolls are forecast to have dropped 7.5 million in May, which is expected to push the unemployment rate to almost 20% after April's more than 20 million drop in jobs. As the crisis hit the lowest paid workers hardest, annual average hourly earnings is expected to jump by 8.5% when the data is published at 8:30 a.m. Eastern Time. Some economists have reduced their estimate for the number of jobs lost in the month after the ADP report showed a much lower drop than forecast. 

Oil deal?

There has been a breakthrough in OPEC+ talks over extending production cuts. Saudi Arabia and Russia clinched a tentative deal with Iraq which may force the country to cut even further in the coming months to make up for over-production recently. Delegates will meet over the weekend to finalize an agreement which will extend the cuts by members until the end of July. Brent crude rallied to close to $41 a barrel this morning, while West Texas Intermediate was trading above $38.  


While the continuing protests in the U.S. over the death of George Floyd were mostly peaceful overnight, there were clashes with police again in New York. President Donald Trump's popularity is suffering amid the protests, with Democratic candidate Joe Biden now almost eight points ahead in an average of national polls. Biden said during an online forum with black supporters that 10% to 15% of Americans are "not very good people."


After yesterday's brief pause for breath, global equity markets are firmly back in rally mode today, driven by European stimulus, hopes of a fast recovery in economic activity and the OPEC+ breakthrough. Overnight the MSCI Asia Pacific Index added 0.7% while Japan's Topix index closed 0.5% higher. In Europe the Stoxx 600 Index had gained 1.2% by 5:50 a.m. with automaker, energy and bank stocks among the strongest performers. S&P 500 futures pointed to more green at the open ahead of the jobs report, the 10-year Treasury yield was at 0.855% and gold slipped. 

Coming up...

Canada is also releasing its unemployment report for May at 8:30 a.m., with a drop of 500,000 positions forecast. While the oil market is focused on the OPEC+ discussions, today's Baker Hughes rig count at 1:00 p.m. may be of interest as it might show some resumption of activity among U.S. producers. President Trump is due to visit Maine despite security concerns expressed by the state's governor. There are no earnings of note scheduled. 

What we've been reading

This is what's caught our eye over the last 24 hours

And finally, here's what Emily's interested in this morning

The U.S. yield curve is on a tear. So much has it leapt ahead that it's even sparked talk about the Federal Reserve putting a leash on it. Long-dated Treasuries have taken the brunt of a Treasury market selloff as the U.S. economy gradually reopens. The benchmark 10-year yield hit a significant milestone Thursday, pushing above 0.78%, the top end of the range it's held since the end of March. That set a fire under options markets, spurring demand for puts targeting as high as 0.95%.

The last time the slope of the Treasury curve was making news, it was upside down. Alarm bells started ringing across global markets in March last year as the rate on long-dated Treasuries fell below those on shorter maturities – a reliable signal that a recession is coming within the next year or two. At the time, skeptics had perfectly good reasons for doubting the curve's strength as a signal (in a low-interest rate environment, with the tightest U.S. labor market in a generation), but all bets were off with the advent of Covid-19, and the prophesy was fulfilled. This week, the five- to 30-year curve reached its steepest since February 2017, with the spread pushing above 122 basis points. This climb bears little resemblance to back then, when excitement over tax cuts and deregulation conjured up visions of an historic economic expansion.

Right now the world's biggest bond market is reshaped by the massive combined forces of Fed interventions and government borrowing. Futures pricing suggests the target policy rate will be at the zero bound for at least the next five years, and that's keeping front-end yields pinned down. The prospect of more government borrowing to lift the economy out of the deep recession, meantime, is driving up the longer end.

Some are even talking about the emergence (at long, long, long last) of inflation. But that's tough to reconcile with a 10-year breakeven rate around 1.2%, which implies the Fed's preferred inflation measure will be little more than half the 2% target over at least the next decade.

Follow Bloomberg's Emily Barrett on Twitter at @notthatECB

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