Written Commentary
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June 1, 2023
- US labour data front and centre, as German Orders collapse, China Services PMI dip and weak French Industrial Production and strong Wages digested; awaiting UN FAO Food Prices, UK Construction PMI, Canada jobs, ECB survey of professional forecasters; Fed and ECB speakers; bank concerns remain
- US labour data: Payrolls growth seen slowing, but ADP hints at upside risks; Average Hourly Earnings seen unchanged at still elevated levels; overall likely to underline labour market still tight
- ECB: few surprises other than pre-announcement of termination of APP reinvestment; inflation concern still very much outweighing tighter credit conditions
EVENTS PREVIEW
With the Fed and ECB meetings out of the way, attention turns to the monthly US labour data. Ahead of that, there are the RBA’s Statement on Monetary Policy (SOMP), the spectacular -10.7% m/m collapse in German Factory Orders (follows February’s -6.0% m/m, and paced by Capital Goods -14.1% m/m and Intermediate Goods -7.5% m/m, and Auto sector -47.44% m/m); along with French Industrial Production and Q1 Wages to digest. Ahead lie the April UN FAO World Food Price Index, UK Construction PMI and Canadian Unemployment, along with the ECB Survey of Professional Forecasters, various Fed, ECB and SNB speakers, while Cigna and Warner Brothers Discovery head the run of US Q1 corporate earnings. Next week brings the gamut of US and China inflation indicators, China Trade, UK Q1 GDP and monthly activity indicators, Indian CPI and Industrial Production, along with an expected further 25 bps rate hike from the Bank of England. It will also be a busy week for monthly reports in commodity markets with the EIA’s Short-term Energy Outlook, USDA WASDE, China CASDE and CONAB’s Brazil grains and oilseeds S&D report, and there will again be plenty of corporate earnings to digest.
The ECB meeting and press conference contained few surprises, other than perhaps the pre-announcement of the termination of APP reinvestment as of July, which many had expected in June. Lagarde was keen to stress that ‘we are not pausing’, that inflation has been ‘too high for too long’ and there remained ‘significant’ upside risks to the inflation outlook, and noting that some had called for a 50 bps hike, even while acknowledging that financing conditions have tightened considerably as the cumulative impact of its rate hikes have started to bite. Per se, this still suggests two more 25 bps hikes in June and July, with quite a lot hanging on next month’s staff forecast update.
** U.S.A. – April labour data **
The consensus once again looks for a deceleration in headline Payrolls growth to 182K vs. March 236K, whereby Private Payrolls are seen up just 156K vs. March’s 189K, which has an all too familiar feel to it, given that forecasters have consistently under-clubbed their forecasts for many, many months, and per se smacks of wishful thinking based on market rate expectations. While very poorly correlated with Payrolls, the sharp 29KK jump in ADP Employment (largest since July 2022) does skew risks to the upside of estimates, and also implies a strong Household survey, which is expected to see the Unemployment Rate edge up 0.1 ppt to 3.6%, while the participation rate is seen unchanged at 62.6%, and it could also see a dip in the Underemployment Rate from March’s 6.7%. But with the Fed equivocating on a rate pause, Average Hourly Earnings will likely be the focal point, with another 0.3% m/m increase leaving the y/y rate unchanged at 4.2%. The focus will then turn to next week’s CPI, which is expected to see headline risk 0.4% m/m to leave the y/y rate unchanged at 5.0%, and core to rise 0.3% m/m to push the y/y rate down to a still stubbornly high 5.4% from 5.6%.
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