- China signal on being open to trade talks with US likely to dominate market sentiment, as US labour data and Asia/Europe Manufacturing PMIs dominate data schedule; oil behemoths top earnings run; ECB Bulletin and US White House FY 2026 Budget proposal also in view
- Eurozone CPI seen around target on headline, temporarily edging up on core, presenting no barrier to further rate cuts, amid growth risks
- US Non-farm Payrolls expected to slow, but still post robust gain, outlier risks elevated of both sides of consensus; ADP points to weak household survey; Underemployment rate requires attention
EVENTS PREVIEW
China’s ostensible signal that it is willing to negotaite on tariffs on the US will likely be the overriding sentiment driver, though do also take note of Japan’s comments about its huge holding of US Treasuries being ‘on the table’ in US trade talks. US monthly labour data dominates the run of data final day of the week, with Eurozone provisional CPI and the remaining run of European and Asian Manufacturing PMIs (delayed by yesterday’s Labour Day holiday) also on tap, and follow South Korea’s CPI and Australian Retail Sales overnight. While quite modest in numerical terms, US corporate earnings highlights include oil behemoths Chvron and Exxon Mobil, along with Cigna, Du Pont and Fluor Corp. The events schedule is sparse with the ECB Economic Bulletin, and more importantly the White House’s FY 2026 Budget proposal. There are also the UK local election results to ponder, which saw both major parties lose ground amid a further fracturing of UK politics, though low turnouts at local elections, and the usual high level of protest votes that are typically cast advise against overextrapolating to national trends.
Next week’s run of data and events features the FOMC (no change) and BoE (25 bps rate cut) policy meetings, while a relatively light data schedule sees World Services PMIs/ISM, China Trade, German Orders, German & French Industrial Production & Trade, Japan’s Labour Cash Earnings & Household Spending, US Non-farm Productivity, Canadian labour data along with inflation data from Brazil, Mexico and Turkey. Brazil’s BCB COPOM is expected to hike rates a further 50 bps to 14.75%, while the commodity space looks to the US EIA’s Short-Term Energy Outlook (STEO), Canada’s Statscan monthly grains S&D report and Brazil’s monthly report on Coffee production.
Eurozone CPI is expected to post a headline rise of 0.5% m/m, which thanks to base effects would see the y/y rate dip to 2.1%, though core CPI is expected to temporarily edge up to 2.5% y/y. But overall the trend in inflation still points to a gradual convergence to target, and the ECB’s primary concerns in policy terms are about growth for the time being, with the debate on the council is about whether policy should be neutral or accommodative in the face of tariff related uncertainty, and an ongoing sluggish trend in growth, which this week’s better than expected Q1 GDP does nothing to dislodge. The run of Asian PMIs overnight were very divergent, a collapse in Indonesia (46.7 vs. 52.4) should have come as no surprise given its high vulnerability to tariff wars (though the recovery in the IDR in the past fortnight may prompt a rebound in May), while South Korea and Taiwan PMIs also fell further, but India posted a 10-mth high, and the Philippines saw a sharp rebound, though overall many countries remain in contraction territory. Eurozone PMIs are also largely seen in contraction territory, with improvements in Germany and France hardly a signal of a turnaround.
** U.S.A. – April Labour market report **
– The consensus looks for a relatively solid 135K
increase in Payrolls, with Private Payrolls seen up 122K, even though this
would be a marked slowdown from March’s 228K and 209K prints, with business
services and construction expected to underpin the monthly rise, due to
seasonal and weather-related factors. The lower than expected 62K increase in
ADP Employment, while frequently a poor steer for Payrolls, implies some risks
of a weak Household survey report, in sharp contrast to March where Employment
rose 201K. Much may depend on how weak seasonal hiring in leisure and
hospitality proves to be as consumers rein in their spending, and tourist
numbers drop, along with tariff related weakness in freight/transport. One
might also observe that given a protracted period of heightened skills
shortages since the height of the pandemic, layoffs may take more time to
emerge, even if hiring plans will have already been pared back. The
Unemployment Rate is seen unchanged at 4.2%, though perhaps more attention needs
to be given to the Underemployment Rate (March 7.9%) as some workers may have
been put on short-time work. Average Hourly Earnings are seen up an unchanged
0.3% m/m, which thanks to marginally adverse base effects would see the y/y
rate edge up to 3.9%. While the report has heightened market sensitivity due to
next week’s FOMC meeting, it will certainly not shift expectations of no change
next week, though it may impact what markets are discounting for year-end
rates.
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