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Risk gains as Powell signals lower for longer on rates
Fed chair Jay Powell announced a new monetary policy framework based on average inflation targeting (AIT), as had been anticipated. I read this as admission by the Fed that the monetary and fiscal response to the pandemic will ultimately prove inflationary (M1 increase, deglobalisation etc), but that the Fed does not want to pull the handbrake on a long and slow recovery by being constrained with a mandate to keep inflation level. It’s also increasingly politically tuned into recent events in prioritising jobs over price stability.
Essentially the Fed is taking a step back from price stability, it is not going to worry about inflation overshooting; the focus is on employment not stable money. It’s about supporting the economy not prices – this is an important shift, albeit one that we have largely assumed unofficially to be the case for some time. The Fed today made it clear it won’t take the punch bowl away as quickly as it would have done in the past.
Fed AIT framework leaves unanswered questions
But the Fed is keeping its hands relatively free by not sticking to any specific formula relating to AIT – this poses some unanswered questions for the FOMC. There was not much in the way of detail of how the Fed plans to deliver the new framework. For instance, if inflation runs at 1% for 5 years, does that mean it allows it to run at 3% for the next 5?
Powell’s speech lacked in specifics on the nature of forward guidance that the FOMC is clearly leaning towards – this will be an important lever of the AIT approach, so it needs to be clarified at the next meeting in September.
Should forward guidance be based on a time horizon or specific economic data? Yield curve control has been shelved as an idea by the FOMC but remains an option should it desire. The September 16th meeting will be of great importance to iron out how AIT will be delivered.
Powell stressed that if ‘excessive inflationary pressures’ were to build, or inflation expectations were to rise above levels consistent with its mandate, the Fed ‘would not hesitate to act’. This gives it a degree of latitude down the line should there be a major inflation overshoot.
Dollar offered, stocks and gold bid
Markets are trying to make sense of the changes. The dollar index sold off initially to 92.40 but pared losses and came back to 93 as US yields started to pick up with 10s back above 0.719% having dipped to 64bps. EURUSD spiked to 1.190 but quickly retreated to 1.180. GBPUSD surged to 1.3280 before coming back in to the round number support.
Stocks rose with Wall Street hitting fresh record highs at the open as AIT is fundamentally supportive of risk assets, entailing as it does lower interest rates for longer. The S&P 500 approached 3,500 for the first time, meaning it’s up 100 points for the week. Gold drove sharply higher to $1976 but retraced as quickly as it rallied to $1940 as yields climbed. The key for the market is what will AIT do to inflation expectations.
Earlier data showed just what a big task the Fed has in getting unemployment back to pre-pandemic levels (3.5%). It’s clear the US still has a very troubled jobs market – initial claims still above 1m, continuing claims only came down a small amount to 14.54m from 14.76m a week before. Q2 contraction in the US was a little less than previously estimated, with the annualised figure coming in at –31.7% vs –32.9% on the first reading.
Week Ahead: FOMC minutes and NFP dominate the calendar
While Chinese PMIs will be in focus at the start of the week, the US economic calendar will dominate over the next few days, with the latest ISM Manufacturing PMI, FOMC meeting minutes, and the June nonfarm payrolls report all on the way.
It’s time for the latest China PMIs – as these are the first of the month’s global PMI data they are the first chance markets have to see how things are shaping up.
China’s recovery may be in jeopardy now thanks to new Covid-19 outbreaks, but the latest PMIs will nonetheless serve as something of a blueprint for how other nations might fare, as they too look past battling the virus and begin focussing more on getting their economies up and running again.
Germany, Eurozone inflation
Consumer prices shrank -0.1% across the Eurozone during May, although this is hardly a shock. Inflation data this week could show further declines, which is to be expected given the huge collapse in demand, surging unemployment, and the stimulus being pumped out by the European Central Bank. Last week Fitch predicted that core Eurozone inflation will decelerate throughout the next 18 months and end 2021 below 0.5%.
A sustained period of deflation will be bad for the economy, but in the short term these readings are expected and so the market impact of CPI data has been somewhat lessened of late.
Germany retail sales
Consumer activity has rebounded sharply in the US and UK since restrictions were eased – can Germany follow suit? US retail sales jumped 17.7% in May, beating market expectations of an 8% rise, while UK sales were up 12% against the 5.7% forecast.
German retail sales dropped -5.3% in April, but this was far better than the -12% fall expected by analysts, with a surge in online sales helping soften the rate of collapse. Sales are expected to have climbed 2.5% in May as physical retailers began to reopen, but as with the US and UK data we could see a much bigger reading.
US ISM manufacturing
US manufacturing is struggling to recover from the shock of the pandemic. May’s ISM PMI ticked higher after the lowest reading in more than a decade in April, but missed market expectations by half a point. A sharper rebound is forecast for June, but the manufacturing PMI released by IHS Markit last week disappointed expectations by remaining in contraction territory, even as the Eurozone and UK readings returned to growth.
FOMC meeting minutes
The FOMC dealt markets a blow as a result of its last meeting, releasing worse-than-expected economic projections that did much to kill the idea that the US would enjoy a V-shaped recovery. Policymakers noted that interest rates would stay near zero until at least 2022 and that the rate of asset purchases would increase over the coming months.
Minutes of the meeting will give more details, with markets particularly interested in any mentions of yield curve control (YCC), which is likely to be the next policy tool deployed by the Fed to keep a lid on rates. The time of this move is still uncertain, but the minutes may provide some clues.
US nonfarm payrolls report
It’s the US Independence Day bank holiday on Friday, due to July 4th falling on Saturday this year. This means the June nonfarm payrolls report is due out on Thursday.
Last month’s data stunned with a 2.5 million increase in employment against forecasts of an -8 million drop, indicating that the US economy may be recovering faster than previously thought.
Recently weekly jobless claims figures have disappointed, however – although the numbers have continued to fall, the decline in new claims has been softer than expected. Is this pointing to a more permanent scarring of the labour market, and if so do we need to reign in expectations that the NFP can continue to deliver such strong numbers? You can get instant reaction to the data and analysis of the market response with our free NFP Live webinar – register free today.
Highlights on XRay this Week
Read the full schedule of financial market analysis and training.
|07.15 UTC||Daily||European Morning Call|
|From 15.30 UTC||30-Jun||Weekly Gold, Silver, and Oil Forecasts|
|17.00 UTC||01-Jul||Blonde Markets|
|19.00 UTC||01-Jul||Introduction to Currency Trading: Is it For Me?|
Key Events this Week
Watch out for the biggest events on the economic calendar this week:
|12.00 UTC||29-Jun||German Preliminary Inflation|
|23.30 UTC||29-Jun||Japan Unemployment / Industrial Production|
|After-Market||29-Jun||Micron Technology – Q3 2020|
|01.00 UTC||30-Jun||China Manufacturing, Non-Manufacturing PMIs|
|06.00 UTC||30-Jun||UK Finalised Quarterly GDP|
|30-Jun||easyJet – Q2 2020|
|09.00 UTC||30-Jun||Eurozone Flash CPI|
|12.30 UTC||30-Jun||Canada Monthly GDP|
|14.00 UTC||30-Jun||US CB Consumer Confidence|
|After-Market||30-Jun||FedEx Corp – Q4 2020|
|01.45 UTC||01-Jul||Caixin Manufacturing PMI|
|06.00 UTC||01-Jul||Germany Retail Sales|
|Pre-Market||01-Jul||General Mills – Q4 2020|
|Pre-Market||01-Jul||Constellation Brands – Q1 2021|
|12.15 UTC||01-Jul||US ADP Nonfarm Payrolls Report|
|14.00 UTC||01-Jul||ISM Manufacturing PMI|
|14.30 UTC||01-Jul||US EIA Crude Oil Inventories|
|18.00 UTC||01-Jul||FOMC Meeting Minutes|
|01.30 UTC||02-Jul||Australia Trade Balance|
|12.30 UTC||02-Jul||US Nonfarm Payrolls (Friday is US Bank Holiday)|
|01.30 UTC||03-Jul||Australia Retail Sales|
|All Day||03-Jul||US Bank Holiday – Markets Closed|
Week Ahead: Covid-19 to hit sentiment, can discounters thrive?
A raft of sentiment data, US goods orders figures, and earnings from discounters well-positioned to thrive during the current economic downturn will be the focus of financial markets in the week ahead. Here’s your full break-down of the top events to watch.
German confidence heading higher? UK, NZ sentiment predicted to drop further
There is plenty of sentiment data available this week, with the German Ifo Business Climate, GfK Consumer Sentiment surveys for Germany and the UK, the US CB Consumer Confidence report, and the latest ANZ Business Confidence survey for New Zealand in the docket.
The mood is expected to have improved in Germany, where lockdowns were lighter to begin with and so the expected economic hit shouldn’t be so severe. Schools and small businesses have reopened, and the return to some kind of normality is expected to lift sentiment from its historic lows.
It will be a different story in the UK, where the bulk of restrictions remain in place. A sharp rise in unemployment will also weigh on sentiment, with even workers shielded by the government’s furlough scheme left uncertain about their future once the Treasury stops paying their wages.
Meanwhile, although the New Zealand economy has reopened, the latest ANZ confidence survey is expected to show another weakening in business sentiment.
This may not truly reflect the current mood, however, as the government last week announced fiscal stimulus equal to over 20% of GDP to jump-start growth, and predicted a return to pre-Covid-19 levels of joblessness within two years.
Flash CPI: Germany and Eurozone
The collapse in oil prices and the continued stimulus efforts of the European Central Bank will weigh on the latest inflation figures from Germany and the Eurozone this week.
Price growth in the Eurozone slumped from 0.7% to a four-year low of 0.3% in April, finalised data last week confirmed. The collapse in crude oil prices was largely to blame; the more stable core reading slipped to 0.9% from 1% year-on-year. Food, alcohol, and tobacco prices rose.
While many of the Eurozone’s major economies slipped into deflation, price growth remained firmer in Germany. Another bout of data like that this week could fuel further tensions between the Eurozone’s powerhouse and its central bank, who were arguing over the legality of its asset purchasing programme.
US durable goods orders to collapse further, unemployment to hit spending
US durable goods orders tumbled in March. Orders plunged –14.4% on the month, with a collapse in transport orders, particularly commercial aircraft, largely responsible.
Forecasts for April suggest a further –25% decline. Personal income and spending figures later in the week could also show another large drop. Income declined -2% on the month during March, while spending dropped a record –7.5% as people complied with stay-at-home orders. With 20 million Americans losing their jobs in April, the next set of income figures is likely to show a larger collapse.
Japan unemployment rate, flash industrial production, retail sales
A slew of data from Japan on Friday will give a broad view of how the economy is faring, although we already know it’s in a recession. Unemployment is expected to have climbed to 3.2% during April, from 2.5% in March. Retail is expected to continue to shrink on the month, with the rate of decline slowing from –4.5% to –3.2%. Preliminary industrial production data will show whether the –5.2% year-on-year decline recorded in March moderated last month.
Earnings: Discounters expected to fare well on consumer stockpiling
Discounters Costco, Dollar General, and Dollar Tree all report earnings this week. Consumers rushed to buy the essentials during Q1 and tightening budgets and surging jobless rates could help drive demand in the long run.
Costco, however, has other business interests that may continue to feel the pain of the stalling economy and social-distancing measures; stagnation in its food courts, travel services, and optical services wings dragged comparable sales down –4.7% on the year in April, even as demand for consumer staples surged.
Dollar Tree announced that it would bring on an additional 25,000 staff to help it cope with the increased demand in its stores and distribution centres. Earnings will take a knock from the decision to suspend online sales for seven days towards the end of March, which hit revenue by almost 20% during the period. Online is where other retailers like Walmart have been able to make up for falling instore sales volumes.
Dollar General is the clear winner in terms of stock performance, having gained 16% since the start of the year. Costco is nearly 5% higher, while Dollar Tree, which performed well during the last recession, has slumped nearly 15%. Goldman Sachs initiated the stock as a “Buy” last week.
Heads-Up on Earnings
The following companies are set to publish their quarterly earnings reports this week:
|Pre-Market||27-May||Royal Bank of Canada|
|After-Market||27-May||Autodesk – Q1 2021|
|After-Market||27-May||Workday Inc – Q1 2021|
|Pre-Market||28-May||Dollar Tree – Q1 2020|
|14.00 UTC||28-May||Dollar General – Q1 2020|
|After-Market||28-May||Salesforce – Q1 2021|
|After-Market||28-May||Costco Wholesale Corp – Q3 2020|
|After-Market||28-May||Dell Technologies – Q1 2021|
Highlights on XRay this Week
|17.00 UTC||25-May||Blonde Markets|
|15.30 UTC||26-May||Weekly Gold Forecast|
|10.00 UTC||27-May||The Marketsx Experience: Platform Walkthrough|
|14.45 UTC||28-May||Master the Markets with Andrew Barnett|
|12.25 UTC||29-May||US PCE: Live Market Analysis|
Key Economic Events
Watch out for the biggest events on the economic calendar this week:
|08.00 UTC||25-May||German Ifo Business Climate|
|06.00 UTC||26-May||German GfK Consumer Climate|
|14.00 UTC||26-May||US CB Consumer Confidence|
|01.30 UTC||27-May||Australia Construction Work Done (Q1)|
|01.00 UTC||28-May||New Zealand ANZ Business Confidence|
|01.30 UTC||28-May||AU Private Capital Expenditure (QoQ)|
|12.00 UTC||28-May||Germany Preliminary CPI|
|12.30 UTC||28-May||US Durable Goods Orders|
|14.30 UTC||28-May||US EIA Natural Gas Storage|
|15.00 UTC||28-May||US EIA Crude Oil Inventories|
|23.01 UTC||28-May||UK GfK Consumer Confidence|
|23.30 UTC||28-May||Japan Unemployment Rate, Flash Industrial Production, Retail Sales|
|09.00 UTC||29-May||Eurozone Flash Inflation|
|12.30 UTC||29-May||Canada GDP (Q1)|
|12.30 UTC||29-May||US PCE, Personal Income, Personal Spending|
UK inflation slips, M&S profits slide, indices hold trading ranges
It’s widely accepted that the pandemic is a profoundly deflationary shock to the global economy. No surprise then that UK consumer price inflation slowed to 0.8% in April from 1.5% in March. In fact, the bulk of the decline was due to lower oil prices.
Schemes to keep the economy on life support continue to support purchasing power – it may take some months for inflation to bottom as the economy goes through a painful readjustment. Input prices for manufacturers declined 5.1%, whilst factory gate prices were 0.7% lower. What comes next is anyone’s guess, but inflation could be round the corner as central banks and governments deal with vast debts.
M&S sales drop, but cash flow better than feared
Retailers will be at the coalface when it comes to inflation. Big discounts are expected as shops reopen over the summer – better to clear the old lines than having a bunch of shorts and bikinis to scrap. Marks & Spencer has been a bellwether for the UK high street, but lately its crown has slipped.
Results today indicate it’s had a tough time coping with the pandemic – in the six weeks to May 9th clothing sales tumbled 75% , while food sales declined 8.8%. But management are happy that they’ve outperformed their Covid-19 scenario with £150m better cash flow after six weeks than they had feared. Dividends of course are out of the question – MKS will not pay a final dividend for 2019/20 and it does not plan paying one for 2020/21.
Overall full year profits before tax declined around 20%. Free cash has halved over the year to £225m and after tax profits were down 40%. We knew it was going to be tough for M&S, so the focus for investors is the transformation plan, which is accelerating with more cost savings planned. Covid-19 has accelerated lots of consumer trends and it may just be the catalyst required to accelerate Marks & Spencer’s transformation into a 21st century retailer.
In particular it looks as though M&S has learnt just how important online is – so it’s making its Ocado venture more central to the business, introducing 1,600 Clothing & Home lines to be available online via Ocado. Much smaller store footprint, more focus on food, leverage the Ocado platform – there is at last a lot to be said for the MKS approach. Of course, we’ve talking about Marks’ recovery and transformation plans for many a year.
The pound eased back from the day’s highs on the weaker inflation numbers, with GBPUSD retreating under 1.2250, eyeing a potential retest of yesterday’s swing low at 1.2220.
Stock markets soft as scientists question Moderna vaccine data
Wall Street snapped a three-day win streak after doubts were raised about Moderna’s potential vaccine. Some scientists asked by health news website Stat queried the data, or lack thereof. Stocks ran up against the bad news as energetically as they ran with the good. It just shows how the market is clinging to any kind of sort of good news.
European shares followed lower again on Wednesday. The FTSE 100 just held onto the 6,000 level yesterday but opened lower this morning. Basic resources, financials and banks were the leading losers. Indices are within recent ranges as the tug-o-war between the economic reality on the one side and the twin hopes of stimulus and scientific research on the other play out.
API data shows surprise draw, WTI clings to $32
Oil was steady in its recent consolidation pattern as API figures showed a draw on US crude stocks. Inventories fell 4.8m barrels in the week to May 15th, vs expectations for stockpiles to build by 1.5m barrels. EIA figures are due later today and are seen showing a build of 1.7m barrels. With WTI trading above $30 again shale producers are already seen coming back on stream, which could tilt the balance back towards oversupply.
Nevertheless, demand is picking up and shut-ins have resulted in a little more supply being taken off. Reports suggest Chinese oil demand has almost returned to where it was before the pandemic. WTI (Aug) is just about holding above $32 but has a look like it wants to pull back – EIA figures today may provide the catalyst.
The risk-off tone supported gold bulls, with prices making steady progress back to $1750, having struck a low of $1725 yesterday. The recent 7-year high at $1764 struck earlier in the week is the upside target.
The S&P 500 quickly retreated from the area of the late Apr swing high around 2954 and closed below the 61.8% retracement. Futures indicate it will open around this level.
Week Ahead: FOMC’s symmetric minutes, German sentiment, UK inflation
The last meeting of the Federal Reserve Committee saw policymakers reaffirming their commitment to letting inflation run hot in order to make up for years of lacklustre price growth. Jerome Powell told reporters after the meeting that “we wanted to underscore our commitment to 2% not being a ceiling, to inflation running symmetrically around 2% and we’re not satisfied with inflation running below 2%”. Expect more underscoring in the minutes, and perhaps more softening of the economic assessment – the post-meeting statement revised its view of consumer spending to “moderate” from “strong” in December.
Germany ZEW sentiment
Industrial production data last week raised further questions over the outlook for the Eurozone. Production fell 4.1% during 2019, and now there’s the added threat of disrupted supply chains thanks to the coronavirus outbreak. Last month’s ZEW sentiment index surged to 26.7 from 10.7 in December, but recent developments suggest that optimism may have been premature.
A soft inflation reading in December had seen markets divided over whether or not the Bank of England was finally about to cut interest rates, having been on hold so long due to Brexit uncertainty. In the end Governor Mark Carney left things unchanged before passing the baton to Andrew Bailey. Another round of soft inflation data this week might not be enough on its own to persuade the Monetary Policy Committee that a rate cut is necessary, but if Friday’s preliminary Markit PMIs also show weakness markets are likely to raise bets on easing soon.
Eyes on OPEC
Oil markets had been hoping that OPEC would ride to the rescue this month, bringing forward its March meeting as the coronavirus outbreak hammers global oil demand. It now seems that this is unlikely, but any rumours to the contrary will still have a strong impact on oil. A change in diagnostic methods last week saw the number of coronavirus cases and deaths race higher, but equities largely shrugged this off. It’s commodities that are bearing the brunt of the economic impact, so key risks remain for oil on virus and OPEC-related headlines.
Heads-Up On Earnings
The following companies are set to publish their quarterly earnings reports this week:
|17th Feb – 21.30 GMT||BHP Billiton||Q2 2020|
|18th Feb – 00.30 GMT||Reserve Bank of Australia Meeting Minutes|
|18th Feb – 04.00 GMT||HSBC Holdings||Q4 2019|
|18th Feb – 09.30 GMT||UK Unemployment Rate, Average Earnings|
|18th Feb – 10.00 GMT||Eurozone/Germany ZEW Survey Results|
|18th Feb – Pre-Market||Walmart||Q4 2020|
|18th Feb – Pre-Market||Medtronic||Q3 2020|
|18th Feb – Pre-Market||Glencore||Q4 2019|
|19th Feb – 09.30 GMT||UK Consumer Price Index|
|19th Feb – 13.30 GMT||Canada Consumer Price Index|
|19th Feb – 19.00 GMT||FOMC Meeting Minutes|
|20th Feb – 00.30 GMT||Australia Employment Change/Unemployment Rate|
|20th Feb – 01.30 GMT||People’s Bank of China Interest Rate Decision|
|20th Feb – 07.00 GMT||Germany GfK Consumer Confidence|
|20th Feb – 09.30 GMT||UK Retail Sales|
|20th Feb – 12.30 GMT||ECB Monetary Policy Meeting Accounts|
|20th Feb – 15.30 GMT||US EIA Natural Gas Storage|
|20th Feb – 16.00 GMT||US EIA Crude Oil Inventories|
|20th Feb||BAE Systems||Q4 2019|
|21st Feb – 06.00 GMT||Allianz||Q4 2019|
|21st Feb – 09.30 GMT||UK Market Flash Composite (Inc Flash Manufacturing/Services PMIs)|
|21st Feb – 10.00 GMT||Eurozone Consumer Price Index|
|21st Feb – Pre-Market||Deere & Co||Q1 20202|
Watch the Week Ahead on XRay
Highlights on XRay this week:
|Daily||08.15 GMT||European Morning Call||Free||Register|
|18th Feb||14.15 GMT||Live Trading Room with Trendsignal||Free||Register|
|18th Feb||16.30-17.10 GMT||Asset in Focus: Oil Gold and Silver||Free||Register|
|19th Feb||12.00 GMT||Midweek Lunch Wrap||Free||Register|
|21st Feb||13.00 GMT||Live Trade Setups with Mark Leigh||Free||Register|
Week Ahead: Inflation headlines heavy data week
Welcome to your guide to the week ahead in the markets.
US & Eurozone inflation
As markets weigh the prospect of more stimulus from global central banks, hard economic data this week will be eyed for any signs that the premise on which market expectations are based is wrong.
Friday sees the release of the flash CPI estimate for the Eurozone. Indications so far do not suggest inflation in the bloc is moving higher. The same day the Fed’s preferred inflation gauge, the core PCE measure, is released. Core CPI has been moving up lately but the PCE indicator has remained subdued.
After the G7 summit over the weekend, markets are looking to the EU and Britain for where the next move is on Brexit. MPs return on September 5th but there will be plenty of politicking going on behind closed doors before then.
With Aussie traders looking to the next RBA meeting at the start of September, this week’s download of data will be closely assessed for clues about future rate cuts. Construction work done, building approvals and capital expenditure figures are all set for release in the coming days.
After the end of the trading week on Saturday we get the latest manufacturing and services figures out of China. The key question for risk assets is whether the trade war is still biting down on Chinese expansion.
A batch of US figures are out including core durable goods (Monday), the second reading of the Q2 GDP print (Tuesday), while on Friday we get the Chicago PMI and University of Michigan consumer sentiment reports.
Earnings season is wrapping up, with just a couple of releases this week.
|Aug 26th||Dollar General|
|Aug 28th||Tiffany & Co|
|Aug 28th||Hewlett Packard|
|Aug 29th||Pernod Ricard|
|Aug 29th||Best Buy|
There are plenty of things to look forward to on XRay this week. You can watch live, or subscribe to view on catch up.
|07.15 GMT||Aug 27th||European Morning Call|
|15.30 GMT||Aug 27th||Asset of the Day: Bullion Billions|
|15.45 GMT||Aug 27th||Asset of the Day: Oil Outlook|
|13.00 GMT||Aug 28th||Asset of the Day: Indices Insight|
|07.00 GMT||Aug 29th||Live Trading Room|
There are a lot of dates for the diary this week, including US Core Durable Goods and Eurozone Flash CPI.
|08.00 GMT||Aug 26th||German IFO Business Climate|
|12.30 GMT||Aug 26th||US Core Durable Goods|
|14.00 GMT||Aug 27th||US CB Consumer Confidence|
|01.30 GMT||Aug 28th||Australian Construction Work Done|
|14.30 GMT||Aug 28th||EIA Weekly Crude Oil Inventories|
|01.00 GMT||Aug 29th||ANZ Business Confidence|
|01.30 GMT||Aug 29th||Australia Private Capital Expenditure|
|12.30 GMT||Aug 29th||US Q2 GDP (2nd Reading)|
|09.00 GMT||Aug 30th||Eurozone Flash CPI|
|12.30 GMT||Aug 30th||US PCE Inflation|
Payrolls day: eyes on wage inflation
Data this week from the US has offered some mixed signals. Employment via the ADP private payrolls number was strong, coming at 275k, well ahead of expectations. One cannot always see a direct correlation between the ADP print and the NFP number, but nonetheless it suggests another print at least in line with the 3-month average. Census hiring might skew the numbers to the upside – prepare for a 250k+ print this time as a result, which could cause a little volatility.
Meanwhile the Chicago and ISM PMIs were soft, coming in around their weakest in two years and suggesting some drag in some employment sectors.
Within the ISM numbers the Employment Index fell to 52.4%, a decrease of 5.1 percentage points from the March reading of 57.5%. The Chicago PMI also highlighted weaker employment, with the decline in demand and production matched by reduced demand for labour. The Employment Indicator fell to its lowest level since October 2017, and below the three- and 12-month averages.
PCE figures meanwhile, shows spending accelerated at the fastest pace in almost ten years, rising to 0.9% in March after a 0.1% gain in February. Personal incomes, rose 0.1% in March. Inflation fell to 1.6% from 2%. All told there is perhaps a sense that wages are not squeezing higher as much as expected.
Unemployment shows tightness
On unemployment, initial jobless claims were steady at a seasonally adjusted 230,000 for the week ended April 27th, after jumping 37k the week before, the biggest rise in two years. The four-month moving average of claims has inched up 6,500 to 212,500.
Last month marked a recovery in the headline number as the March figure climbed to 196k from the wobble in February. Wage growth however was much softer than expected, rising 0.1% MoM versus the 0.3% expected. This left annual average wage growth at 3.2%, short of the 3.4% expected which was printed the prior month.
Post-FOMC, the USD is firmer with a push off the 96 handle back towards the 98 handle. For a drive higher for USD we would like require a beat on wage growth more than anything else as big headline jobs number is easy to disregard month to month. In fact it’s hard to get quite as excited about the main NFP print these days, particularly as the numbers can be quite volatile month to month. Focus on the three-month average and the wage data. Also unemployment, should it fall further and highlight further tightening in the labour market will get the Fed’s attention.
GBPUSD is holding the 1.30 handle but a big number on wages may pressure the pair lower and a retreat to the 200-day line around 1.2960.
190k jobs created