Macroeconomics: The Day Ahead for 4 April

As the trade wars cloud casts a long shadow over global markets, with yesterday’s larger than expected 411K bbls increase in OPEC+’s May production target (3x the original planned increase) only adding to the fog of uncertainty, today’s normally quite significant run of data will have to spring some big suprises to have more than a passing impact. US labour data tops the agenda, with the overnight Japan Household Spending, Swedish CPI, German Factory Orders (the lack of any recovery from January’s slump undelines the very parlous state of German industry) and French Industrial Production (with encouraging rebound in manufacturing) to digest, while ahead also lie the UK Construction PMI and Canadian Unemployment. Powell, Barr and Waller provide the day’s Fed speak, though they will probably eschew much in the way of direct comments on the impact of tariffs, other than to double down on the ‘wait and see’ message (as per Jefferson and Cook overnight). The OPEC+ decision was probably down to Saudi Arabia reverting to an old playbook tactic to try and restore discipline and unity among producers, by putting downward pressure on prices to force countries (above all Kazakhstan) that have consistently exceeded production quotas to make larger compensation cuts for that overproduction. There will of course be some that see this as bowing to pressure from the US govt to lower crude prices, and also to allow for tighter sanctions on output from Iran and Venezuela – in all likelihood, OPEC+ like that particular optic, but it was certainly not a primary motive. If there were greater co-operation among the rest of the world, the best response to the US would be for the ROW to reduce tariffs across the board by 10%, and slap a 10% increase on all US goods imports. That not being the case, we wait and watch for how the EU and othe countries respond. Otherwise the biggest question for markets is how much further does de-risking and rebalancing portfolios have to run, with many stock indices teetering on the brink of potentially larger corrections, and govt bond yields already discounting considerable further rate cuts.

Next week’s schedule has a number of first division indicators including: US and China CPI and PPI, UK monthly GDP and accompanying activity indicators, German Industrial Production and Trade, Japan’s Labour Cash Earnings, PPI and Economy Watchers (service) survey, and in Canada the Bank of Canada’s Q1 Business Outlook survey. But as markets wait on the counter measures to US tariffs, the EU Trade Ministers Meeting on April 7 will be the focal point, and perhaps offer some signals on whether the EU is willing to escalate tensions with Digital Services taxes, or whether long standing internal tensions end up watering down its response. FOMC minutes, the Bundesbank’s monthly report, an expected further 25 bps rated cut from India’s RBI, and plenty of central bank speakers tops the run of events. In the commodity space, US EIA’s monthly Short-term Energy Outloook (STEO) and the USDA’s WASDE and Brazil’s CONAB agricultural S&D reports will be closely watched.

** U.S.A. – March labour market report **

– Today’s Payrolls are forecast to ease fractionally to 140k from 151K, and Private payrolls to edge down to 135K from 140K, with an elevated risk of an outlier both given the reversal of some DOGE layoffs, unwind of January / February storm impacts and some anecdotal evidence of improved hiring (unlikely to be sustained, but that is by the by). The Unemployment Rate at 4.1%, Average Hourly Earnings at 0.3% m/m 4.0% y/y and Participation Rate at a lowly 62.4% are all seen unchanged vs. February. Truth be told, the impact of govt policies will show up in official data very unevenly over coming months, for example a good number of govt layoffs may not show up until H2 2025, as employees will remain on payrolls until then. Per se it is much too early to evaluate the extent of the disruption from govt policies.