Macroeconomics: The Day Ahead for 4 June

Trade, geopolitics and elevated global debt concerns continue to dominate, with the US imposing a doubled 50% tariff on steel and aluminium imports as of today (with the exception of the UK, which has a 25% tariff as per the framework trade deal). The regular data and events schedule is not overwhelming, with Services PMIs/ISM, Australian Q1 GDP, South Korea’s CPI and the US ADP Employment survey, along with the Bank of Canada’s and Poland’s NBP rate decisions, with no changes expected at either policy meeting. There is an air of paralysis in market price action, which owes everything to persistent ambiguity about the US administration’s policies, which only exacerbates increasing inaction among businesses both in the US and worldwide. To a certain degree that probably reflects a degree of frustration or rather impatience that incoming data is also ambiguous, as well as the experience of serial whipsaws, and a valuable lesson about not jumping from despair to euphoria when worst outcomes appear to have been avoided. The overall situation was always going to remain both fluid and fickle, and there is nothing to suggest that this will change in the foreseeable future. Agility and adaptability remain the watchwords.

** U.S.A. – May ADP Employment **

– Yesterday’s JOLTs data was an apposite example of examining details before drawing conclusions, with another sharp revision (upward) to prior reading and a higher than expected outturn seemingly suggesting stronger labour demand, though the increased openings were in sectors that have long standing unfilled positions, while manufacturing and consumer facing services saw declines. Today’s ADP Employment gauge remains a better proxy for the Household survey that provide the Unemployment Rate than the establishment Payrolls survey, with a modest rebound from 62K from 110K expected. An important aspect of the US labour market picture to understand is that the combination of skilled labour shortages, predicated on demographics and latterly lower immigration, as well as the enormous ambiguity around the current administration’s policies behoves businesses to be cautious in their decision making. Hastily laying off staff makes no more senses than planning major investment in the face of so much uncertainty, and the rule of thumb has always been that labour demand is always a lagging not a leading indicator.

** Canada – BoC rate decision **

– Friday’s Q1 GDP flattered to deceive at 2.2% SAAR vs. expected 1.7%, thanks to a massive surge in Inventories, with Household Consumption slowing very sharply to 1.2% from Q4 4.9%, while Business CapEx cratered (-3.1% vs. prior +9.4%), which resulted in Final Domestic Demand falling -0.1%, after trending around 3.0% for most of 2024. Q2 GDP will likely be very weak, thanks to soft labour demand and a drop in trade, and per se does make the case for the BoC to make an additional cut after pausing in April. The consensus has however swung from expecting a cut last week to no change. The rebound in April’s core CPI measures to 3.1/3.2% y/y will make the BoC very cautious about a further cut, and likely wanting to see how the trade tariff situation with the US evolves, and indeed to see what the new Carney government implements in terms of any fiscal boost. A July rate cut looks more likely than today.