Trump-Musk clash hits stocks ahead of NFP
Updated Updated Thu, 2025 June 5 10:30
* President Trump says Xi call yielded rare earths understanding
* ECB cuts rates as expected, chance of further reductions wanes
* Tesla shares tumble after Musk escalates attack on Trump
* Stocks dip late on over Trump-Musk spat, US-China trade talks
FX: USD was barely changed after falling sharply on weak jobs data and the ECB meeting. But the buck found a bid through the US session and pulled back from the intraday low at 98.35. The late Trump-Musk bust-up saw risk sentiment hit with the dollar only closing marginally lower. Focus turns to the monthly US employment data, in amongst no doubt more drama between Trump and Musk, plus trade developments.
EUR spiked higher to 1.1494 during ECB President Lagarde’s press conference as she suggested the bank is “in a good position”. The world’s most popular currency pair then pared some gains, though still closed in the green above 1.14. ECB Board members appeared to be in no hurry to cut rates again at the July meeting, unless there is a new escalation of trade tensions. But disinflationary pressures could materialise which may see a cut after the summer.
GBP popped north to a fresh cycle top at 1.3616 before moving lower through the US session. UK-US yield spreads have widened modestly since mid-May, offering the pound critical fundamental support. There has been very little UK news this week, with cable moving on dollar volatility. The next BoE meeting is on June 19 with wage growth data released next week.
USD/JPY moved up in a relatively rangebound day. Safe havens underperformed as the risk mood picked up after the Trump-Xi call. The release of disappointing labour cash earnings data seems to be weighing on the yen as traders consider its implications for broader inflationary pressures and the BoJ’s response.
AUD advanced to a high of 0.6537 versus the dollar during the ECB press conference. CAD dropped to another new cycle low at 1.3633 before rebounding. The BoC’s ‘dovish hold’ was largely expected. PM Carney and Trump are apparently holding secret talks on trade and security.
US stocks: US stocks closed lower after two-way price action. The S&P 500 lost 0.53% to settle at 5,939. The Nasdaq closed down 0.80% at 21,547. The Dow Jones finished lower by 0.25% at 42,320. The consumer discretionary sector and Tesla were the big losers, down 2.47% and 14.26% respectively. That was the biggest one-day drop on record for the Elon Musk-run EV-maker, as the Trump-Musk feud escalated exceptionally quickly. The plunge saw $153bn erased from its market cap after the US President signalled he could terminate government contracts with Musk’s companies. The stock has currently lost 25% since the start of the year. Nvidia fell 1.4% after a director sold over 1mn shares this week. Apple lost a US appeals court bid to pause a judge’s order requiring it to allow more App Store competition. The stock price closed 1.1% lower.
Asian stocks: Futures are mixed. Asian markets were also choppy as markets digested disappointing data in the US. The ASX 200 struggled for direction following mixed economic figures including the latest trade figures and household spending for Australia. The Nikkei 225 retreated amid headwinds from recent yen strength and softer-than-expected labour earnings. The Hang Seng and Shanghai Comp were varied as tech and property names led the outperformance in Hong Kong. The mainland was contained following mixed Caixin PMI data and as participants waited to see if a Trump-Xi call would take place this week.
Gold: Threatened an upside breakout as it posted a near four-week high above $3,400. But prices pared gains and closed nearer its intraday lows. Treasury yields and the dollar picked up through the day.
Day Ahead – NFP and Canada jobs
Consensus currently expects 126k non-farm payrolls to be added to the US economy in May. That’s lower than 177k in April and the 3-month average which currently stands at 155k, 6-month at 193k, and the 12-month at 157k. The unemployment rate is seen unchanged at 4.2%. We note the Fed’s March projections forecast unemployment would rise to 4.4% this year. Average hourly earnings are expected to rise by +0.3% m/m, picking up in pace from the +0.2% reported in April. Markets will be watching to see if the shock of Liberation Day fed into weaker hiring and if the DOGE spending cuts are having a meaningful impact on federal government employment yet.
Regarding Canada jobs, the jobless rate may rise to a post-pandemic peak of 7%, after the highest print since November was seen in April. Public employment may have declined in May after being boosted by last month’s federal election. Policymakers at the BoC noted on Wednesday uncertainty around tariffs and their impact on Canada’s economy as grounds for caution at the moment.
Chart of the Day – S&P 500 break higher halted
The S&P 500 enjoyed it best month since November in May, though the rally had stalled more recently. The Mag 7 have led the markets once again, and solid earnings likely meant bullish momentum might push the benchmark index up to recent highs. But this week’s break higher was stalled by yesterday’s Tesla collapse.
Initial support sits at a minor Fib retracement level of the February-April drop at 5,866. The 200-day SMA resides below here at 5,794, near the late May swing low. The all-time top is 6,147. A strong NFP report would likely be greeted with buying as the labour market remain resilient. Disappointing data may be ignored after an initial sell-off if investors look through the one-off figures.
