Macroeconomics: The Day Ahead for 3 June

Services PMIs and US labour data (ADP, weekly jobless claims) dominate an otherwise quite light schedule of statistics, with Australian Trade and Retail Sales and Turkish CPI and PPI to digest, along with yesterday’s Fed Beige Book. The latter echoed other surveys in highlighting supply chain problems (raw materials, logistics and labour) across manufacturing, construction and services, while also indicating a stronger pace of activity relative to the prior report. The events schedule has more from the BIS Green Swan conference, and a number of Fed and ECB speakers, while the ECJ ruling on Hungary’s Article 7 ‘Rule of Law’ challenge may also make a few waves. There are multi-tranche govt bond auctions in France and Spain, and Canada sells 5-yr. The becalmed atmosphere in financial markets is above all demonstrated by the US 10-yr yields trading in an ever narrowing range, though this has now become so tight that a break out would appear to loom.

** World – May Services PMIs **

– Manufacturing PMIs were universally strong, even if there were signs of some marginal loss of momentum in the US, above all in Employment terms, while price pressures and lengthening supplier delivery times were a universal feature. For today’s Services PMIs, the overnight run from China (solid but missing forecasts), Japan and India (both contracting due to lockdown measures) underlines that the Services sector continues to face considerable challenges due to the pandemic amid continued stop-start. The other observation will be that output in the Euro area is catching up with strength in the US and UK, on the back of re-openings and accelerated vaccination rates, but again it will be price metrics, delivery times and employment which garner most attention. However and this also applies to the various national confidence metrics, there remains a distinct risk that the welcome upsurge in business optimism finds a less robust echo in official data.

** U.S.A. – May ADP Employment, Weekly Jobless Claims **

– April was another pandemic era month in which the gap between ADP Private Employment (742K) and official Private Payrolls (281K) was colossal, underlining that the ADP measure remains an unreliable predictor of the official data. The risk of a sizeable revision to April ADP is quite substantial, with May seen posting a solid 650K rise, still ahead of estimates of a 600K rise for Private Payrolls, with the focus on the extent of small services business hiring, above all given widespread reports of labour shortages as the economy re-opens. Per se it may be the weekly jobless claims data that attracts attention with a drop below 400K to 395K expected, still well above the 190-230K range that was typical pre-pandemic, and much attention will be to be given the enhanced PUA/PEUA benefits claimant numbers, above all given that nearly half of all states have terminated PUA/PEUA benefit programmes, and some have started new programmes to give bonuses to unemployed workers returning to work, with some service sector companies (e.g. Amazon) also offering ‘sign-on’ bonuses. The impact of these measures will become an increasingly important factor in coming weeks, and doubtless deliver some further positive outliers. It remains the case that the Fed will be very much focussed on items such as the Underemployment and Participation rates in tomorrow’s official data, particularly given that still extensive labour market slack is its primary counter to those sceptical about the upturn in inflation being transitory.