Macroeconomics: The Day Ahead for 3 April

  • Busier day for statistics and central bank speakers, focus on Services PMIs/ISM, Eurozone CPI and US ADP Employment; Powell headlines run of Fed speak, OPEC+ JMMC meeting likely to recommend no change to output targets; German 10-yr auction
  • Eurozone CPI: lower than expected national readings impart modest downside risk, base effects likely to bump prices higher temporarily higher in Q2
  • Services PMIs: solid readings from China and Japan; US ISM seen edging up, focus on orders, prices and employment sub-indices
  • US ADP Employment: expected to pick up slightly, poor guide to payrolls, but generally quite well correlated with household survey


A relatively busy day for statistics and Fed speak, as markets grind back into gear after the Easter break, with the focus on Services PMIs/ISM, Eurozone and Turkish CPI, and US ADP Employment as Powell headlines the speaker roster, while OPEC+’s JMMC is expected to recommend no changes to production targets, as supply / demand dynamics continue to improve modestly. Germany issues EUR 4.5 Bln of 10-yr, with no major corporate earnings in Europe or the USA. As much as bond and equity markets have kicked off Q2 on the same weaker note that they ended Q1, this looks to be no more than a modest correction in response to the Fed’s ‘no rush to cut rates’ narrative, even if dis-inverting yield curves (see charts for US, UK and Germany) do serve to tighten financial conditions and long-term financing costs, most notably in the UK, but also posing a headwind for equities. Taiwan’s worst earthquake in 25 years will raise concerns about potential supply shock in the semiconductor sector. China’s Services PMI improved marginally (52.7 vs. expected/prior 52.5), but failed to echo the bigger bump up in the official Services measure, though still signalling a reasonable pace of expansion. With Eurozone and UK Services PMIs due tomorrow, the focus turns to the US Services ISM, which is seen edging up 0.2 pts to 52.8, though there will be more interest in the sub-indices for Orders, seen edging lower to 55.5 but remaining robust, Prices Paid that are expected to remain elevated at 58.4, and Employment, forecast to improve but remain in contraction at 49.0, though the latter has a very poor correlation with Services Payrolls.

** Eurozone – March CPI **

– National headline HICP readings universally undershot expectations, though generally only slightly with the exception of France, imparting a modest downside risk to the consensus for 0.9% m/m, that would see the y/y rate edge down 0.1 ppt to 2.5%, while core is seen at 3.0% y/y from 3.1%. Given that the ECB has already nailed its colours to the post of a June rate cut, and the speculation is now on how many more cuts thereafter and what pace, today’s outturn would have to signal the potential for a sizeable undershoot relative to ECB staff forecasts to bolster the case for a sharp downward trajectory for rates. That said, base effects, for example, last year’s introduction of a flat rate for German regional public transport, and a reversion to a 19% VAT rate on German household gas from the current 7.0%, will exercise upward pressure in coming months, as will higher petrol prices.

** U.S.A. – March ADP Employment **

– While the ADP Employment stimate has proven to be less than useful in terms of the establishment Payrolls survey, it has proved quite useful as a proxy for the household survey, which generates the Unemployment Rate. Forecasters look for another moderate 150K rise (vs. Feb 140K and March Private Payrolls estimate of 163K). That would suggest Friday’s Unemployment Rate would be more likely to be unchanged at 3.9%, than dip back to 3.8% as the consensus anticipates. As long as the rate remains below 4.0%, the Fed will likely stick with the ‘no rush’ narrative, and as much as labour demand has gradually eased, it is still still far from suggesting the sort of jump above  4.0% (FOMC’s year-end estimate) that would prompt a change of narrative.

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