Macroeconomics: The Day Ahead for 18 May

Given a fairly light run of data, the focus will again be on the US debt ceiling negotiations, which would appear to be heading in the right direction, though a conclusion still gets very close to so-called “X-date”. A relief rally in risk assets looks to be pre-programmed, but attention will again revert to central bank rate trajectories, above all the Fed, given the renewed push back from both doves and hawks on markets pricing rate cuts in H2 2023. There are Japan’s Trade and Australian jobs data to digest, while ahead lie US weekly jobless claims, Philly Fed Manufacturing and Existing Home Sales. Fed and BoE speakers (Bailey and Pill) feature in terms of the events schedule, with Philippines’ BSP and Banco de Mexico both seen holding rates at 6.25% and 11.25% respectively, with the Ascension Day holiday in a number of European countries thinning trading volumes. A modest run of corporate earnings has Alibaba Group and Walmart as its headliners, while the US sells 10-yr TIPS. While not as dramatic as the sharp fall in UK HMRC Payrolls, the worse than expected Australian Employment data serves as a reminder that a protracted period of weak growth in many developed world economies, companies may finally be throwing in the towel on labour ‘hoarding’, even if it will require a few months more data to confirm that this is not just another statistical quirk, either due to faulty seasonal adjustment on the back of erratic trends or an overall erratic demand picture in the post pandemic world.

In terms of the US data run, initial claims are expected to ease back to 252K from after last week’s unexpected spike to 264K, paced above all by Massachusetts, where local officials have suggested that the jump may have been due to fraudulent claims. Be that as it may, anecdotal evidence from the Challenger Layoffs survey does suggest that claims should continue to move higher, and in contrast to Q4 and Q1, layoffs are no longer primarily in the tech sector, but also hitting consumer goods manufacturers and retail. As noted in earlier housing sector preview this week, Existing Home Sales continue to face considerable headwinds from a low level of homes being offered for sale, and this is expected to be reflected in a further drop of 3.2% m/m to a 4.30 Mln SAAR pace. The Philly Fed Manufacturing survey is seen posting something of a dead cat bounce to a still very weak -20.0 following April’s sharp drop to -31.3 (worst since the Q2 2020 pandemic troughs), with the focus remaining on the 6-mth outlook.