Week Ahead: NFPs, OPEC & PMIs

Week Ahead

OPEC+ meets this week against a backdrop of weaker oil prices. Nonfarm payroll data is released too. Will we see another strong month or is February’s surge a one-off? Meanwhile, the US and China square off in the manufacturing sphere with key PMI releases. Deliveroo, one of the UK’s most hotly anticipated IPOs, goes live too. 

OPEC+ meeting – more cuts or staying the course? 

Supporting oil prices throughout the lockdown and return normalcy has always been top of OPEC’s agenda. This will take on renewed importance in April’s meeting, as crude oil prices have dropped down from their $70 high over the past couple of weeks. 

At the time of writing, prices had risen off a six-week low despite the EIA reporting higher than expected storage volumes at US warehouses. WTI is trading about $60 with Brent at $63. 

Cuts are very likely to stay in place. OPEC and allies have taken 7% of pre-pandemic supply out of circulation, and chair Saudi Arabia has committed to a further 1m bpd cut. 

However, there is an EU-shaped spanner in the works.  

Vaccine rollout, or lack thereof, in Europe has also put pressure on oil prices. Politically motivated supply tussles, and now more questions around the AstraZeneca vaccine’s effectiveness, have all conspired to impact oil demand as speculators unwound long positions they had booked on higher summer travel demand. 

Vaccine uptake coupled with a fresh wave of new Covid-19 cases across Europe has resulted in tighter lockdowns. France and Germany, for example, have announced more restrictions, as has Poland. The UK has also said it has had to slow is own vaccine programme, one of the best in the world, due to vaccine supply pressure. 

For the second quarter of 2021, the EIA sees Brent prices averaging $64 per barrel and then averaging $58 a barrel in the second half of 2021, as it expects downward price pressures will emerge in the coming months as the oil market becomes more balanced.  

OPEC’s next move will be crucial if it wants to help support its members through better prices in 2021. 

US nonfarm payrolls – all eyes on labour market after February surge 

US nonfarm payrolls are released on Friday. Following February’s blowout month, the market will be watching March’s report intensely, hoping to pick up more signals that the US is quickly returning to economic health. 

 Payrolls surged 379,000 in February, smashing expectations of 210,000 and edging down the unemployment rate to 6.2%.  

The battered leisure and hospitality sector showed the lion’s share of new payrolls, with 355,000 added in February. While this encompasses cinemas, hotels, museums, resorts and amusement parts, it was food service that propped up the leisure and hospitality industry in terms of new jobs added, with 285,900. 

 Biden’s stimulus deal is likely supportive of new job creation. As part of the President’s $1.9 trillion  package, small businesses are receiving further support in order to a) support existing jobs and b) possibly lead to new hires or rehires. This includes: $25bn for restaurants and bars; $15bn for airlines and another $8bn for airports; $30bn for transit; $1.5bn for Amtrak and $3bn for aerospace manufacturing. 

Because of the stimulus package, other companies have halted lay off programmes. United Airlines, for instance, had scheduled 14,000 layoffs in February. According to a Washington Times report, this has been cancelled with extra government money flooding into United’s coffers. 

Local transport authorities, especially the Metropolitan Transportation Authority of New York, will be receiving billions, allowing them to protect jobs. New York will be receiving $6bn, for example, so it can stop layoffs and service cuts. 

Of course, this is mostly about protecting existing jobs. It will be interesting to see what effect that has on nonfarm payrolls for March. If SMEs are anticipating more government funds, that may then feed into increased payroll numbers, as their finances may allow recruitment to kick off again. 

US & China Manufacturing PMI 

The two global economic titans reveal their latest manufacturing PMI data in the week ahead. 

Starting with the US, we’ve already seen IHS Markit’s US manufacturing PMI for March, showing another strong month for the country’s factory output. This edged higher to 59 in March from 58.6 in February, implying  activity in the manufacturing sector continued to expand at a robust pace. This reading came in slightly lower than the market expectation of 59.3, but nothing to really fret about. 

We’re waiting for the Institute of Supply Management (ISM) PMI data in the week ahead. February’s was a blockbuster month for manufacturing, according to ISM, with the PMI reaching a three-year high of 60.8. If we take the IHS data as an indicator, then we’ll probably be looking at steady expansion, rather than another massive surge has seen in February. Still, encouraging signals for factory production levels throughout the US. 

The US’ economy has been in a healthier state since the new year. Stimulus put more money into consumers’ pockets, and we already know more is coming. Being able to pump that liquidity back into the economy may be why manufacturing is in such a good place. Vaccine rollout isn’t bad in the US either, which is also underpinning renewed confidence throughout the country. 

On the other hand, Chinese output slowed in February, according to the March release of the Caixin PMI, the country’s key factory productivity tracker. Could we see the slowdown continue in April? 

According to the last Caixin PMI, the index fell from January’s 51.5 reading to 50.9 in February – the lowest for 9 months. A reading above 50 still indicates growth, but the fact its dropping suggests a retraction. 

Why so? Domestic Covid-19 flair ups and slowing global demand for imported Chinese goods put a strain on China’s manufacturing centre. Factories also laid off workers and were in no hurry to fill their vacancies.  

Analysts still expect a strong year for China, as it was one of the few countries to show any real economic growth during 2020 at the height of the pandemic. However, February’s manufacturing slowdown highlights some fragility in the ongoing Chinese economic recovery. We’ll get a clearer picture when March’s PMI is released. 

Deliveroo IPO – save the date 

Deliveroo launches its IPO on March 31st, although unrestricted trading will not be available until April 7th 

Deliveroo has set a price range for its shares of between £3.90 and £4.60 per share, implying an estimated market capitalisation of between £7.6 billion and £8.8 billion.  

The company will issue 384,615,384 shares (excluding any over-allotment shares) and expects to raise £1bn from its IPO. Even at the lowest end of the range, it would be the largest listing in London for a decade and Europe’s largest this year.  

Amazon has a 15.8% stake in the company, but it plans to sell 23,302,240 shares for between £90.8 million and £107.2 million, depending on where the IPO prices. Chief executive and founder Will Shu will sell 6.7m shares, leaving him a remaining stake of 6.2% of the company, worth around £500m. 

Major economic data 

Date  Time (GMT)  Currency  Event 
Tue 30 Mar  3.00pm  USD  CB Consumer Confidence 
       
Wed 31 Mar  2.00am  CNH  Manufacturing PMI 
  1.15pm  USD  ADP Nonfarm Employment Change 
  1.30pm  CAD  GDP m/m 
  3.30pm  USD  US Crude Oil Inventories 
       
Thu 1 Apr  All Day  All  OPEC+ Meetings 
  3.00pm  USD  ISM Manufacturing PMI 
  3.30pm  USD  US Natural Gas Inventories 
       
Fri 2 Apr  1.30pm  USD  Average Hourly Earnings m/m 
  1.30pm  USD  Nonfarm Employment Change 
  1.30pm  USD  Unemployment Rate 

 

Key earnings data 

Date  Company  Event 
Mon 29 Mar  Sinopec  Q4 2020 Earnings 
     
Tue 30 Mar  Bank of China  Q4 2020 Earnings 
  Carnival  Q1 2021 Earnings 
     
Wed 31 Mar  Micron  Q2 2021 Earnings 
  Walgreens  Q2 2021 Earnings