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The Economic Week Ahead

Market Analysis

A convergence of politics, as well as monetary and fiscal policy will collide this week after President Trump finishes commemorating his first 100-days in office over the weekend. Despite lobbying Congress hard for a second vote on the ACA repeal and a Continuing Resolution (CR) on government funding, those cans were kicked down the round with a delayed vote on the former and successful one-week funding bill that will buy a little more time on both fronts. Passed by the House, the CR will keep the government running next week allowing lawmakers more time to debate on a long-term bill to take operations through the rest of the fiscal year. The Senate also unanimously passed the CR to keep the government funded for one more week, while leadership of both houses indicated they are close to a broad spending plan. Markets will weigh these developments closely ahead of the FOMC meeting and April payrolls. Asia cools off this week at least in terms of data, if not geopolitics, after N. Korea fired another failed test missile. In Europe, in wake of the mixed messages from the more bullish-but-dovish ECB last week focus will be returning to eurozone politics with the second round of presidential elections in France at the end of the week

United States: The U.S. economic calendar will be overshadowed by the April employment report, which looms at the end of the week. April nonfarm payrolls are forecast to increase by 188k vs the subpar 98k reading in March, with a 98k private payroll gain. The unemployment rate is expected to hold steady from 4.5% last month. The week will start out with March personal income (Monday), seen rising 0.3% vs 0.4%, while April ISM is forecast to dip to 56.6 from 57.2 (Monday). April vehicle sales are projected to rebound (Tuesday) and MBA mortgage market indices are due (Wednesday) following the rebound in rates from post-election lows, which could crimp refits. The April ADP Employment report (Wednesday) should post a 190k gain (median 200k), below the March figure of 263k. April ISM services may bounce (Wednesday) to 55.9 from 55.2, while EIA energy inventory data is due. The March trade deficit is set to widen to -$44.7 bln from -$43.6 bln (Thursday) and Q1 productivity is seen flat, down from 1.3% in Q4. Initial jobless claims may dip 11k to 246k (Thursday) for the week ended April 29, while March factory goods are expected to be flat vs 1.0%. In addition to the jobs report (Friday), consumer credit is forecast to increase $16.0 bln from $15.2 bln.

Canada: Canadian calendar is rather lean in terms of the number of top tier releases this week, the reports that are out have the potential to move the market. Employment (Friday) is expected to rise 20.0k in April after the 19.4k gain in March. The risk remains for a pull-back in jobs given the robust gains in total jobs that stretch back to August with only one interruption (November’s jobs tally slipped 2.4k). The earnings figures will be of as much interest as the total jobs figures, with another anemic month of earnings growth consistent with the Bank of Canada’s view that “material excess capacity remains” in Canada’s economy. The March trade report (Thursday) is projected to show a trimming in the deficit to -C$0.8 bln from the -C$1.0 shortfall in February that ended the upbeat run of trade surpluses that lasted from November of 2016 to January of this year. Exports are seen making some headway (+0.7%) after the 2.4% tumble in January. The loonie was weaker against the U.S. dollar, which is supportive of export growth. The Ivey PMI for April is due Friday while the Markit manufacturing PMI is scheduled for Monday. Dealer reported vehicle sales for April are expected on Tuesday. BoC Governor Poloz delivers a speech (Thursday) in Mexico City to the CanCham Mexico and Club de industrials. The speech will be available on the Bank’s website at 16:10 ET.

Europe: Data releases this week are unlikely to change the overall picture of a cyclical recovery that is also starting to lead to broad improvements on the labour market. After French and Spanish GDP numbers are looking for an overall Eurozone GDP growth (Wednesday) of 0.5% q/q, unchanged from Q4. The second quarter started with a strong round of confidence data and an encouraging revival in France which is catching up and adding to signs that the recovery is not just focused on Germany. The final round of April PMI readings should confirm the Eurozone Manufacturing PMI at 56.8, and the Services reading at 56.2 which should leave the composite at 56.7, indicating a strong expansion of economic activity. Markit reported with the release of preliminary numbers that employment growth continues to be strong Especially the German labour market is looking quite tight already and we are looking for a further improvement in the sa jobless number of -11K leaving the April jobless rate unchanged at a record low of 5.8%. Overall Eurozone numbers are more backward looking but the March reading should fall to 9.4% from 9.5%, although developments remain uneven across countries and the high rate of youth unemployment remains a key challenge for politicians going ahead.

The calendar also has Eurozone PPI and supply from France and Spain, while Germany sells EUR 3 bln of 10-year Bunds on Wednesday. There is plenty of ECB speak from Lautenschlaeger, Praet and Draghi among others, but comments are likely to focus on Draghi’s main message from last Thursday, namely that nothing has changed so far.

UK: The business week in London markets starts on Tuesday after the May Day holiday on Monday. The calendar this week is highlighted by the April PMI surveys. The manufacturing PMI (Tuesday) expected at a 52.0 reading after the 52.0 outcome in March. A similar abatement is anticipated in the construction and services PMIs (due Wednesday and Thursday, respectively), seeing the former at 52.0, down from 52.0, and the latter at 54.5, down from 55.0 in March. In-line data would reaffirm a picture of an economy in the early throws of stagnation, amid eroding real household incomes, ongoing government austerity, political uncertainty, and declining investment.

Japan: Japan reveals the April manufacturing PMI on Monday, which is expected to tick up to 52.5 from 52.4. April auto sales are also on deck Monday. In China, the April Caixin/Markit manufacturing PMI (Tuesday) is expected at 51.0 from 51.2 previously, while the April services PMI (Thursday) should advance to 52.5 from 52.2.

Australia: Australia’s calendar features the Reserve Bank of Australia’s meeting (Tuesday), expected to reveal no change in the current 1.50% rate setting. The statement is projected to be consistent with no change in rates through year end. The Bank’s Statement on Monetary Policy (Friday) will provide updated growth and inflation projections. Governor Lowe speaks (Thursday) on “Household Debt, Housing Prices and Resilience.” Economic data is headlined by the March trade report (Thursday), projected to show a A$3.5 bln surplus in March after the A$3.6 surplus in February. The Melbourne Institute Inflation Index for April is due Monday.

New Zealand: New Zealand’s calendar has the Q1 employment report (Wednesday), projected to show a 0.7% gain after the 0.8% gain in Q4. The unemployment rate is seen falling to 5.1% from 5.2% in Q4. There is nothing from the Reserve Bank of New Zealand this week. No change in the 1.75% rate setting through year-end s anticipated.

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Andria Pichidi

Market Analyst


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