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WEEK IN FOCUS: Nonfarm Payrolls & FOMC Headline The Week, With Plenty Of Other Risk Events

The Chinese official PMIs (due for release on Sunday 30th April) will likely set the tone for early trade next week. Analysts are looking for a marginal moderation in the manufacturing release, with the median estimate looking for a print of 51.7 against a prior 51.8. As ever there are no expectations for the non-manufacturing release with last month’s coming in at 55.1. Fears surrounding an economic hard landing in China have receded in recent times, and last month’s releases added further credence to this idea (which was further supported by a strong Q1 GDP release). The industrial sector is benefitting from higher prices and a recovery in demand fuelled by a construction boom. This is as policymakers are looking for a continuation in the growth of the services sector to fuel an economic rebalancing away from a heavy reliance on investment and exports.

Elsewhere, the EU is set to convene on Saturday 29th April to mark the formal adoption of its guidelines for Brexit negotiations. German Chancellor Angela Merkel has recently warned that anyone with any doubts should not harbour any illusions over the bloc’s resolve. Investec believe that “these will still be preliminary talks and we do not expect to get into the real meat of negotiations until later in the year.”

Monday trade should be subject to relatively low levels of liquidity with holidays in Europe, the UK and China.

North America: -

The US Federal Reserve is expected to stand pat and leave its federal funds target range at 0.75%-1.00% when it issues its decision on Wednesday. The decision is expected to be a bit of a damp squib with no press conference scheduled, and markets currently pricing in a circa 75% chance of a 25bps hike at the June meeting. US Q1 GDP growth was weak, with personal consumption particularly soft, although the release was subject to some heavily discussed seasonal factors, notably the weather (as a result watchers expect the Fed to look tspanough the soft growth print). Rabobank suggest that the “Fed remains optimistic. It continues to emphasise the upward risk to the outlook from fiscal policy. The March dot plot implied tspanee rate hikes of 25bps each this year, more recently - even after the sinking of the health care bill - several Fed speakers have repeated that they anticipate to hike tspanee times this year, and even hinted at the possibility of four hikes depending on the economic data.”

As the Fed decision is expected to be a bit of a non-event, the main risk event will fall on Friday in the form of Nonfarm Payrolls. Analysts expect the headline to come in at 185K, against last month’s 98K. The unemployment rate is expected to rise to 4.6% from 4.5% (while the U6 underemployment metric stood at 8.9% in March). Average earnings are expected to remain stagnant at 0.3% M/M against the 0.2% seen in March. Nomura suggest that “recent data on employment point to a return to trend in job creation following a downside surprise in March, which was likely due to temporary factors. Including March’s lower-than-expected reading, nonfarm payroll employment has an average increase of 178K over the first tspanee months of 2017. Moreover, labour market indicators from the Philly Fed and Empire State surveys improved further in April, indicating steady hiring activity in the manufacturing sector. Favourable labour market conditions over the past tspanee months may also motivate discouraged workers to re-enter the labour force in search of employment.” As ever the ADP employment release (due on Wednesday) will be closely watched (no matter how spurious the correlation with the Nonfarm release), with analysts looking for 175K this time out.

March’s core PCE price index data is also due to be released on Monday, with analysts looking for -0.1% M/M following last month’s 0.2% gain. There are no expectations for the Y/Y print, but it stood at 1.8% in February.

The tier one releases will also be supplemented by the final market PMI releases for April (manufacturing due Monday, services and composite due Wednesday), April’s ISM manufacturing (due Monday) and non-manufacturing (due Wednesday) surveys and both the good trades balance and durable goods data from March due on Thursday.

In terms of Fedspeak Friday brings speeches from Fed Chair Janet Yellen and non-voter John Williams (president of the San Francisco Fed)

Across the border in Canada focus will fall on March’s trade data (due Thursday), as well as the labour market data and Ivey PMI (both due Friday). The Canadian labour market reports have been strong on the whole in recent times, although TD Securities believe that Bank of Canada governor Stephen Poloz “remains focused on the soft spots in Canadian labour markets and exports.”

Eurozone: -

Tuesday brings the release of the final Eurozone manufacturing PMIs for April. The flash release pointed to a strong start to the second quarter, with Markit noting that “the April flash PMI is running at a level consistent with 0.7% GDP growth.” Robust rates of expansion are being seen in the manufacturing sector “as it benefits from the weak euro, which has helped drive export sales growth to a six-year high.” Markit also noted that “the survey’s price measures remained elevated at the highest for around six years and suggest that we will see renewed upward pressure on consumer prices in coming months.” The final services PMI is due to be released on Thursday. The flash print pointed towards “rising employment leading to higher consumer confidence and spending.”

Tuesday also sees the release of the single currency zone’s unemployment data for the month of March, with the median estimate looking for a minor downtick to 9.4% from 9.5%.

Wednesday brings the major regional risk event for the week, in the form of the Eurozone’s advance Q1 GDP release. Analysts expect the Y/Y release to hold steady at 1.7%, with the Q/Q metric expected to tick up to 0.5% from 0.4% in Q4. Nomura are looking for “domestic consumption to maintain its recent strong momentum and exports to recover. Overall, we see the risks to our forecasts as being broadly balanced. If regional growth data continue to improve, we may not have to wait too long before the ECB indicates a change in its policy stance. We expect the ECB to announce a tapering of the QE programme at the September meeting for enactment at the start of next year.” Wednesday also sees the release of producer price data for March, which is effectively a function of the weaker Euro and higher oil prices for the time being.

On the political front, Wednesday brings about the one and only televised debate to take place between the first and second round of the French presidential election. The establishment have backed the frontrunner Emmanuel Macron, while the far right is represented by Marine Le Pen, with opinion polls gyrating around a 60:40 split in favour of Macron.

UK: -

The UK docket will be PMI-centric. Tuesday brings the release of April’s manufacturing PMI, with analysts looking for a moderation to 54.0 from 54.2. The previous survey highlighted that “output and new order growth slowed, but remained above long-term trends,” while price pressures remained elevated. It is also worth noting that the CBI has already released its monthly industrial trends survey for April, which pointed to an overall loss of momentum.  IHS suggest that “Increased prices for capital goods and big-ticket consumer durable goods, diminishing consumer purchasing power and likely increasing business concerns and uncertainties over the economy look likely to increasingly hamper manufacturers.” The consultancy also posits that “demand for capital goods will likely be constrained as business confidence is likely increasingly pressurized by slowing UK economic activity and by mounting uncertainties over the Brexit process now that Article 50 has been triggered.”

The manufacturing PMI will be supplemented by the construction PMI on Wednesday and the services PMI on Thursday. The services survey stood at 55.0 in March as business activity growth hit a tspanee-month high, new work increased at a strong pace, but job creation slowed. The sector also experienced the strongest prices charged inflation since September 2008. IHS suggest that “there are signs that services activity is being markedly affected (albeit to a significantly less extent than retail sales) by increasingly squeezed consumers becoming more cautious in their spending. The first-quarter purchasing managers’ surveys indicated that it is the consumer-orientated services sectors that have been softest recently, while financial services have been the most resilient. Furthermore, when reporting that UK GDP growth moderated to 0.3% quarter-on-quarter in the first quarter of 2017, the Office for National Statistics have estimated that services output growth was just 0.3% quarter-on-quarter. Looking ahead, we suspect consumer services activity will be further pressurized by weakened consumers’ purchasing power as inflation rises appreciably and earnings growth is muted. This is likely to cause some consumers to cut back on their discretionary spending, including on services.”

Lower tier data comes in the form of the Bank of England’s lending data on Thursday.

It is also worth noting that parliament will be dissolved on Wednesday as we head towards the general election.

Asia Pacific: -

The main Chinese data points to focus on during the week will be April’s Caixin manufacturing and services PMI releases, due on Tuesday and Thursday respectively. These surveys focus more on small and medium enterprises than their official counterparts. The manufacturing release is expected to moderate to 51.0 from 51.2, while the services PMI stood at 52.2 in March. Last month Caixin noted that “activity growth slowed across both manufacturers and service providers, while employment expanded modestly at services companies, as manufacturers continued to trim staff numbers. On the inflation front, composite input prices continued to ease, but remained sharp.”

The only release of any note in Japan will be the outdated minutes from the Bank of Japan’s March meeting, while Japanese markets will be closed from Wednesday on the back of a national holiday.

For the Antipodeans, focus will fall on the Reserve Bank of Australia’s (RBA) cash rate decision on Tuesday. In addition to its well-worn line that “unchanged monetary policy is consistent with its growth and inflation targets,” the central bank reiterated that “global economic conditions continue to improve.” In light of the fresh macroprudential controls introduced, the RBA also noted that “a reduced reliance on interest only housing loans would be a positive development,” as it posited that “house prices are rising briskly in some markets.” On the domestic data front the central bank also noted that “some employment data have softened recently,” although March’s labour market report was deemed strong by economists. On the domestic currency, the RBA rolled out its heavily used line that “AUD appreciation would complicate the economy's transition away from mining.” TD Securities note that “OIS is tilted towards easing just now, but some of that is positioning to earn attractive carry rather than represent an outright view that the RBA needs to ease.” AMP Capital are a little more cautious, highlighting that “downside risks to growth remain as mining investment is still falling, underemployment remaining very high, wages growth still ultra-weak, the $A remaining relatively strong and core inflation remaining below target we remain of the view that an RBA rate hike is unlikely until the second half of 2018. The decision will be supplemented by the release of the RBA’s quarterly Statement on Monetary Policy (SoMP). In terms of the SoMP, TD Securities are looking for “a modest upgrade to mid-year GDP, otherwise unchanged CPI forecasts after this week’s Q1 update. Financial conditions are little changed since February. The RBA’s view of the recent pop in full-time hours worked and employment will be our focus given the usual dour assessment to date. We don’t expect new noises on the currency given it is tracking interest rate and commodity price fundamentals.” Monday sees the release of the Melbourne Institute’s monthly inflation metric, and will be the first estimate of Q2 price pressures, with food prices in vogue after Cyclone Debbie wiped out many crops. Thursday brings about the release of Australia’s trade data for March, with analysts looking for the surplus to narrow to AUD 3.30bln from the AUD 3.37bln seen in February. It does seem that last month’s upside surprise was driven by weak seasonal imports from China as opposed to a dip in Chinese demand.

Over the Tasman in New Zealand the dairy auction will come into focus on Tuesday. At the previous event the headline index stood at USD 3,139 with the WMP price at USD 2,998. New Zealand’s Q1 labour market data is set to be released on Tuesday evening UK time (Wednesday morning local). Analysts look for the unemployment and participation rates to hold steady at 5.2% and 70.5% respectively, with wage growth expected to remain relatively anaemic at 0.5% Q/Q and 1.7% Y/Y. Westpac expect the release to be “underpinned by firm economic activity.” However, the bank posits that “even though the demand for labour is firm, strong growth in the labour force means that unemployment rate is expected to remain at 5.2%.” the issue for policy makers is that wage inflation remains modest, with Westpac pointing to the firming in CPI, which implies increased pressure on households, purchasing power.

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