Payrolls Loom as Markets Balance Growth and Inflation Risks

• US Treasury yields edged lower ahead of tonight’s non-farm payrolls report, with the 10-year easing to 4.47%. Payrolls are expected to rise by 85k, with unemployment holding at 4.3%, as markets look for further evidence on whether the US economy is slowing enough to ease pressure on interest rates.
• Australia’s trade balance returned to a $1.8bn surplus in April, driven by a rebound in iron ore exports. The result provides a welcome offset to recent softer growth indicators ahead of what remains a challenging backdrop for the domestic economy.
• Australian bond yields were little changed, with the 10-year holding near 4.93%, while markets continue to price only a 10% chance of an RBA hike in June. Even so, elevated energy prices and ongoing Middle East tensions continue to keep inflation risks firmly on the radar.
• RBA Governor Michele Bullock reiterated that geopolitical developments are creating a highly uncertain inflation outlook, while acknowledging there are early signs higher rates are beginning to cool demand. For rates markets, the focus remains on whether slowing growth can offset inflation pressures enough to keep the RBA comfortably on hold.