Macroeconomics: The Day Ahead for 1 May

While many markets are closed for the May Day bank holiday, all eyes will be on the FOMC meeting along with a relatively busy run of statistics and corporate earnings. There are Korea’s Trade and UK Nationwide House Prices to digest, while ahead lie UK and US Manufacturing PMIs/ISM, US JOLTS Job Openings, ADP Employment and Auto Sales. Outside of the FOMC, ECB’s de Cos and BoC’s Macklem and Wilkins will be speaking, while the UK makes the day’s sole govt debt offering via way of 10-yr Gilts. US corporate earnings highlights are likely to include Devon Energy, Marathon Oil, MetLife, Mosaic, Qualcomm, Yum! Brands and Zillow. Ahead of the FOMC meeting, there will be time to think on how to adjust allocations after a harsh month in April, which saw stocks down 3.4% on the month globally and bonds down 2.5%, another month in which they moved in the same direction, as has been the case in 9 of the past 12, and per se raising questions about the wisdom of portfolio diversification as a strategy. The other talking point, with today’s EI weekly oil and gas inventories data on tap, will be the sharp drop in oil prices in response to more positive signals on a potential ceasefire in the Israel Gaza conflict, in other words removing some of the risk premium, but also with potentially consequences for the inflation outlook across the globe.

** U.S.A. – FOMC meeting, JOLTS Job Openings & ADP Employment

– The primary question for today’s FOMC meeting is just how much of a hawkish pivot will the Fed make, given that Fed speakers have talked of progress on inflation having ‘stalled’, and the need to ‘recalibrate’ policy, and following the sharper than expected rise in yesterday’s Q1 ECI and the modestly higher than expected CPI and PCE prints. This is not a ‘dot plot’ or forecast update meeting, but Powell may hint at some members of the FOMC having adjusted their expectations to ‘higher for longer’, and perhaps even suggest that some see no rate cuts this year. At the extreme, though this would potentially unleash the sort of market instability / volatility which few if any on the FOMC would want to entertain, he could even hint at a further rate hike, if inflation were to pick up. There should also be further details on how and when the Fed will start tapering its quantitative tightening. Today’s run of labour market indicators is expected to see JOLTS Job Openings ease back to 8.70 Mln from 8.756 Mln, but still indicative of a sideways trend, with the quit rate (last 1.36) still above its pre-pandemic average of 1.2, while the ADP Employment measure is seen barely changed at 180K, somewhat weaker than the expected 198K seen for Friday’s Private Payrolls. The relatively sharp setback in yesterday’s Consumer Confidence ‘Labour Differential’ (25.3 vs. March 29.5) implies downside risks on both JOLTS and ADP. Meanwhile Auto Sales are expected to pick up modestly to 15.70 Mln from March’s 15.49 Mln, which would give a small boost to headline Retail Sales.