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The Marketplace - 5th May 2017
05/05/2017
The US labour market report for April will be today’s key focus for markets. Wednesday’s post-FOMC meeting press statement seemingly indicated that the Fed is still on course to raise its policy interest rates at its next meeting on 14th June. In its statement, the Fed acknowledged that “growth in economic activity has slowed” but significantly also said that this was “likely to be transitory”.
Nevertheless, before raising rates for the second time this year it will probably want to see evidence that economic growth has picked up again in Q2. That attaches a lot of importance to upcoming economic data over the next six weeks starting with today’s report.
The March US labour report was mixed. Payrolls grew by only 98k the weakest growth for ten months, but the unemployment rate fell to 4.5% a new cyclical low and at or close to many estimates of full employment. April is forecast to see a partial reversal of both these trends. Most indicators suggest that the labour market remains buoyant and so analysts expect payrolls to rebound and show a 200k rise. The unemployment rate, however, is expected to rise modestly to 4.6%. Earnings will be watched for signs of acceleration, but markets expect annual wage growth to be unchanged at 2.7%.
A number of Fed policy makers are scheduled to speak today, including both Fed Chair Yellen and Vice-chairman Fischer. Of particular interest will be anything they have to say about what the Fed will be looking to justify a June policy move. Canada also releases labour market statistics today but otherwise there are no data releases of note elsewhere.
UK Services PMI – Better Than Expected
Sterling gained a wee bit on Thursday, with stronger than expected data out of Britain's dominant services sector seen bolstering the case for interest rate hikes from the Bank of England coming sooner rather than later. The Markit/CIPS Services Purchasing Managers' Index (PMI), a closely watched gauge of Britain's services industry, unexpectedly rose to a four-month high of 55.8 in April, above forecast.
"The strengthening in the Pound, in line with the upside surprise to the PMI data, is consistent with the fact that this puts more pressure on the Bank of England next Thursday to be more hawkish," said Sam Lynton-Brown, strategist at BNP Paribas, referring to the Bank's next policy meeting. "Although this is a one-off release, having this strong a release ahead of the inflation report is likely to have an outsized impact on sterling over the next few days."
The BoE which will look closely at this week's PMI surveys is widely expected to keep interest rates at their record low through this year and possibly until 2019 as it steers the UK economy through the uncertainty linked to Britain's exit from the European Union. One rate-setter voted last month for a hike, however, and others said they might follow suit soon if there were signs that the economy was maintaining its momentum from 2016.
The Pound's steep fall after last year's Brexit vote has increased domestic inflation, which has taken a toll on consumer spending that was seen to prop up the UK economy in the months following the referendum. Nevertheless, analysts say the lift to Sterling after May's announcement of a snap election next month should help tame inflation and ease the strain on consumers, who propped up the UK economy with robust spending after the EU referendum.
Eurozone Services PMI – Better Than Expected
As had been suggested by upside revisions to Italian and German services PMI, Eurozone services PMI was indeed revised higher in the final estimate to 56.4 vs the 56.2 flash estimate this is the highest level since April 2011. This meant that composite PMI was revised a tad higher to 56.8. Markit notes “Output growth accelerated at manufacturers and service providers, with rates of increase hitting 72- month records in both cases.”
Looking at the country breakdown provided by Markit, the strength in services is being led by periphery countries. Chris Williamson, Chief Business Economist at IHS Markit said: “The encouraging picture from the survey data is likely to help raise many forecasters’ expectations of Eurozone economic growth in 2017, and will also no doubt add to speculation that ECB rhetoric will turn increasingly hawkish.”
Not a market mover, but you can add another mark to the tally of recent positive economic data from the Europe yesterday. Eurozone retail sales in March were solid, increasing 0.3% MoM vs 0.1% expected. This means that retail sales increased by 2.3% YoY in March, although partially helped by a small downward revision in February to 1.7%.
Barack Obama Endorses Macron
Former US President Barack Obama has just made a last minute endorsement of French Presidential candidate Emmanuel Macron. He speaks in a video tweeted by Macron:
“I’m not planning to get involved in many elections now that I don’t have to run for office but the French election is very important to the future of France and the values that we care so much about.”
It is rather uncommon for leaders (or former leaders) of developed countries to weigh-in on other nations’ democratic processes. The last time Obama did so was to back the ‘Remain’ vote prior to the UK’s Brexit referendum………
Trump Tours
The White House has announced that President Trump will be making a series of foreign visits this month. He will travel to Israel, the Vatican and Saudi Arabia, before making his way to the Nato summit in Brussels (May 25) and then the G7 summit in Sicily (May 26).
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