Trading with point and figure

dow

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in supp now
 
- Fresh set of Trump China tariff threats likely to cast a long shadow on
US payrolls day; digesting Japan Wages and Spending, German Production
& French Trade; also looking to UK Labour Costs, Swiss FX reserves &
Canada labour data; Powell, Williams & Carney top busy run of central
bank speakers; Hungary election on Sunday

- US Payrolls: ADP suggests some upside risks, though mean reversion post
February surge, strike and seasonal adjustment may act as drag

- US Average Hourly Earnings: still primary point of focus, expected to
edge higher in yr/yr terms, but leave Fed with plenty of room for
manoeuvre

- US Unemployment Rate: headline seen printing fresh low, but
Underemployment rate suggests a degree of slack

- Charts: LIBOR/OIS spread, JPY IMM future CFTC net position. Texas oil
prices

..........................................................................

********************
** EVENTS PREVIEW **
********************

So the first week of Q2 draws to a close after something of a roller coaster ride, and with the focus naturally on the US labour market report. Ahead that there are the overnight Japan Wages (better than expected, but still negative in real terms) and soft Household Spending along with German Industrial Production (weak across the board outside of energy, and perhaps partly weather related) and French Trade to digest, while ahead lie Swiss FX Reserves, UK Q4 Labour Costs along with Canada's labour data. The scheduled run of events is modest, comprising a mix of central bank speakers from ECB's Coeure and Linde and Norges Bank's lonely 'hawk' Olsen to Fed's Powell & Williams and BoE's Carney, but with markets rather more interested in the next utterances on Trade tensions, in the first instance Trump's threat of a further $100 Bln of Trade tariffs on China. Today will also see the latest CFTC COT data, which will doubtless see some interesting, perhaps sharp shifts in positioning in various asset classes. However it is the JPY position, which may be of interest, from the aspect, as we have argued for a considerable period, that the large JPY short was the biggest hurdle for the USD to jump, if there was/is to be a meaningful rebound in its fortunes - as the attached chart of the CFTC COT net IMM JPY futures position, this has now been largely purged. Eminently there remains scope for a net long JPY to be built, if the 2015 experience is any guide, but with a large EUR long already in place, the scope for USD shorts to be squeezed is building. These are after all markets that remain most vulnerable to lop-sided positioning. The weekend will also see a general election in Hungary, which PM Orban's Fidesz party is expected to win, though opinion polls are sending very mixed signals on whether Fidesz will hold onto to its 2/3 majority in parliament, with some suggesting support at around for 41% (which would equate to some 144 seats in the 199 seat parliament), while others put support as low as 30%, still well ahead of ultra-right wing Jobbik (12%) and the Social Democrats (11%), but implying a much reduced majority. For all that Orban's stance on immigration has a lot of support, there is a strong sense that the economy (above all the labour market) is not nearly as strong as official statistics would suggest. Given the sharp shift to right wing in many CEE countries, the election will be seen as a litmus test for populism.

** U.S.A. - March Labour report **
- As has been the case for a considerable period, today's report is first and foremost about Average Hourly Earnings, and thereafter the numerous other components. It will be recalled that February's Average Hourly Earnings were rather disappointing at 0.1% m/m and took the y/y rate back down to 2.6% from a revised 2.8% in January, (though still in line with the recent average). March is expected to see a rise 0.3% m/m that would edge the y/y rate up to 2.7%, still short of the Sept 2017/Jan 2018 peaks at 2.8%, though implying a glacial grind higher in trend terms. As for Payrolls, the better than expected ADP Employment reading (241K against a forecast of 210K), with the prior reading only revised up by 10K to 246K, despite a 287K Feb Private Payrolls rise would appear to suggest some upside risks to a headline forecast of 185K, and 190K for Private Payrolls. That said, the ADP report has historically tended to overestimate Payrolls in March, with the official data also pulled down by a hefty seasonal adjustment, and then there is the wildcard of the March 12 strike, and as ever the potential for substantial revisions. The Unemployment Rate is projected to dip to a fresh cyclical low of 4.0% from 4.1%, and while a 3.9% reading is on the cards in the near future, the critical element will be whether there is any improvement in the Underemployment Rate that has been stuck at 8.2% for the past two months, having troughed at 8.0% in October/November, still well short of the 6.9% low of December 2000. Last but not least, Average Weekly Hours bounced back quite sharply from a weather induced drop in January to 34.5 in February, and are expected to hold that level, which seems to be a fair assumption given the ongoing strength in recent surveys.
From Marc Ostwald
 
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