Dentalfloss
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from Marc Ostwald
- Fed in focus as recovering USD hits many commodity prices; Asia and
remaining Eurozone PMIS digested; UK Construction PMI, Eurozone Q1 GDP,
and US ADP Employment; Brexit negotiations; German/EU Budget proposals
and Treasury quarterly refunding; German 5-yr sale
- UK Construction PMI: rebound after March weather related slide expected
- Eurozone Q1 advance GDP: expected to slow, but more than well discounted
- US ADP Employment: following large misses vs payrolls, read across
tenuous, but steady ADP profile perhaps a more accurate profile of
US labour demand than official data
- FOMC: likely to acknowledge weaker GDP, but underline outlook optimism
on growth and inflation, door to be left wide open for June rate hike
- Charts: China NBS vs Markit Manufacturing PMI; USD Index vs 10yr UST/Bund
spread; Gold, Silver, Copper, Corn vs USD index; aluminium vs. RUB spot,
USD index vs JPM Asia currency index
..........................................................................
********************
** EVENTS PREVIEW **
********************
The FOMC meeting inevitably takes pride of place over today's proceedings, though there is plenty to consider ahead of the Fed. Asia, Europe and LatAm Manufacturing PMIs, the UK BRC Shop Prices Index and Construction PMI, advance Eurozone Q1 GDP and the US ADP Employment report feature on the statistical schedule, while the events schedule has German Finance Minister Scholz's 2018/2019 budget presentation (expected to stick with Schaeuble's principle of the 'schwarze Null' (balanced budget)), the European Commission's proposals on the EU's post 2020 budget, the start of what looks like another round of very tense Brexit negotiations and the US Treasury's quarterly refunding announcement. Corporate earnings are again plentiful, with highlights likely to include: Lotte Chemical, Phosagro, J Sainsbury, Lundin Petroleum, Novo Nordisk, Standard Chartered, ADP, AIG, Apache, CBRE, Clorox, CVS Health, Kraft Heinz, Marathon Oil, Mastercard, MetLife, Molson Coors Brewing, Prudential Financial, Yum! Brands; Loblaw , Manulife Financial and Banco BTG Pactual. Germany features on the govt bond auction schedule with EUR 3.0 Bln of 5-yr. Market chatter will naturally focus on the very firm tone to the USD, which was always a key risk given the size of the USD short, along with the ever widening spreads with the Bund (now at a 29-yr high), UK Gilt (now at a 34-yr high) and Japan, which will add considerable sensitivity to the FOMC statement, though in the first instance the key question is how many more USD shorts will be forced to "throw in the towel", and how much of a ripple effect it has on commodities (Gold and Silver already very heavily under the cosh), and other asset classes - see array of attached charts.
** Eurozone - Q1 GDP / April Manufacturing PMIs **
- This is as ever a very preliminary estimate based on just 6 countries national data, and a rough guesstimate from Germany. Solid readings from Spain & Austria both 0.7% q/q), a dip in Belgium (0.4%) and the French miss 0.3% q/q), and a projected drop to 0.4% q/q in Germany make it difficult to argue with the consensus 0.4% q/q 2.5% y/y (vs. Q4 0.6% / 2.7%), though the risks are for a modest miss. Preliminary PMI readings for Germany (small up), France & Eurozone (small down) are expected to be confirmed, leaving the focus on Spain and Italy, both of which are expected to dip a little further, though still signalling a solid pace of activity, even if the late 2017 momentum has fizzled. Given that the ECB has already acknowledged this, it is debatable whether today's readings will have any material impact, barring a substantial miss in Spain or more likely Italy, given the rising tide of political uncertainty in the latter.
** U.K. - April Construction PMI **
- While today's Construction and tomorrow's Services PMIs should not be accorded too much weight in terms of the bigger picture on the UK economy, they will offer some indications about the extent to which Q1 weakness was mostly a weather effect, or something more deep seated. The consensus looks for a reasonably sharp rebound to 50.5 from March's 18-month low of 47.0, effectively back into the December through February range (50.2-52.2). If correct, it should also prompt a bounce in tomorrow's Services PMI (forecast 53.5 vs. March 51.7), and by extension confirm that the March slide was largely weather related, though the sttep fall in Q1 Housing Starts reported last week, and the fall-out from the Carillion collapse advise caution in attributing all of the dip to weather effects.
** U.S.A. - April ADP Employment / FOMC Meeting **
- While the consensus for the ADP estimate (198K) is as ever roughly the same as for Private Payrolls (190K), the big misses in March (ADP 139K > payrolls) and February (Payrolls +67K > ADP) advises plenty of caution. One might even observe that the much steadier profile of the ADP in Q1 (ca. +240K each month) may in fact paint a truer picture of labour demand, than the official payrolls data, which are of course still subject to revision. This is not exactly the most hotly anticipated FOMC meeting, with no change expected on rates, and indeed no press conference, though the statement is expected to leave the door wide open for a June rate hike. Ultimately market reaction will boil to how the FOMC tweaks its statement, back in March, it observed "Information received since the Federal Open Market Committee met in January indicates that the labour market has continued to strengthen and that economic activity has been rising at a moderate rate. Job gains have been strong in recent months, and the unemployment rate has stayed low. Recent data suggest that growth rates of household spending and business fixed investment have moderated from their strong fourth-quarter readings. On a 12-month basis, both overall inflation and inflation for items other than food and energy have continued to run below 2 percent. Market-based measures of inflation compensation have increased in recent months but remain low; survey-based measures of longer-term inflation expectations are little changed, on balance." The inflation comments could be tweaked to acknowledge fractionally higher levels, and it will above all be interesting to see what observations are made in respect of trade tensions in terms of the outlook. In March the statement observed: "The economic outlook has strengthened in recent months. The Committee expects that, with further gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace in the medium term and labour market conditions will remain strong. Inflation on a 12-month basis is expected to move up in coming months and to stabilize around the Committee's 2 percent objective over the medium term. Near-term risks to the economic outlook appear roughly balanced, but the Committee is monitoring inflation developments closely." It seems less likely that any changes will be made to the rate outlook "The Committee expects that economic conditions will evolve in a manner that will warrant further gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run."
- Fed in focus as recovering USD hits many commodity prices; Asia and
remaining Eurozone PMIS digested; UK Construction PMI, Eurozone Q1 GDP,
and US ADP Employment; Brexit negotiations; German/EU Budget proposals
and Treasury quarterly refunding; German 5-yr sale
- UK Construction PMI: rebound after March weather related slide expected
- Eurozone Q1 advance GDP: expected to slow, but more than well discounted
- US ADP Employment: following large misses vs payrolls, read across
tenuous, but steady ADP profile perhaps a more accurate profile of
US labour demand than official data
- FOMC: likely to acknowledge weaker GDP, but underline outlook optimism
on growth and inflation, door to be left wide open for June rate hike
- Charts: China NBS vs Markit Manufacturing PMI; USD Index vs 10yr UST/Bund
spread; Gold, Silver, Copper, Corn vs USD index; aluminium vs. RUB spot,
USD index vs JPM Asia currency index
..........................................................................
********************
** EVENTS PREVIEW **
********************
The FOMC meeting inevitably takes pride of place over today's proceedings, though there is plenty to consider ahead of the Fed. Asia, Europe and LatAm Manufacturing PMIs, the UK BRC Shop Prices Index and Construction PMI, advance Eurozone Q1 GDP and the US ADP Employment report feature on the statistical schedule, while the events schedule has German Finance Minister Scholz's 2018/2019 budget presentation (expected to stick with Schaeuble's principle of the 'schwarze Null' (balanced budget)), the European Commission's proposals on the EU's post 2020 budget, the start of what looks like another round of very tense Brexit negotiations and the US Treasury's quarterly refunding announcement. Corporate earnings are again plentiful, with highlights likely to include: Lotte Chemical, Phosagro, J Sainsbury, Lundin Petroleum, Novo Nordisk, Standard Chartered, ADP, AIG, Apache, CBRE, Clorox, CVS Health, Kraft Heinz, Marathon Oil, Mastercard, MetLife, Molson Coors Brewing, Prudential Financial, Yum! Brands; Loblaw , Manulife Financial and Banco BTG Pactual. Germany features on the govt bond auction schedule with EUR 3.0 Bln of 5-yr. Market chatter will naturally focus on the very firm tone to the USD, which was always a key risk given the size of the USD short, along with the ever widening spreads with the Bund (now at a 29-yr high), UK Gilt (now at a 34-yr high) and Japan, which will add considerable sensitivity to the FOMC statement, though in the first instance the key question is how many more USD shorts will be forced to "throw in the towel", and how much of a ripple effect it has on commodities (Gold and Silver already very heavily under the cosh), and other asset classes - see array of attached charts.
** Eurozone - Q1 GDP / April Manufacturing PMIs **
- This is as ever a very preliminary estimate based on just 6 countries national data, and a rough guesstimate from Germany. Solid readings from Spain & Austria both 0.7% q/q), a dip in Belgium (0.4%) and the French miss 0.3% q/q), and a projected drop to 0.4% q/q in Germany make it difficult to argue with the consensus 0.4% q/q 2.5% y/y (vs. Q4 0.6% / 2.7%), though the risks are for a modest miss. Preliminary PMI readings for Germany (small up), France & Eurozone (small down) are expected to be confirmed, leaving the focus on Spain and Italy, both of which are expected to dip a little further, though still signalling a solid pace of activity, even if the late 2017 momentum has fizzled. Given that the ECB has already acknowledged this, it is debatable whether today's readings will have any material impact, barring a substantial miss in Spain or more likely Italy, given the rising tide of political uncertainty in the latter.
** U.K. - April Construction PMI **
- While today's Construction and tomorrow's Services PMIs should not be accorded too much weight in terms of the bigger picture on the UK economy, they will offer some indications about the extent to which Q1 weakness was mostly a weather effect, or something more deep seated. The consensus looks for a reasonably sharp rebound to 50.5 from March's 18-month low of 47.0, effectively back into the December through February range (50.2-52.2). If correct, it should also prompt a bounce in tomorrow's Services PMI (forecast 53.5 vs. March 51.7), and by extension confirm that the March slide was largely weather related, though the sttep fall in Q1 Housing Starts reported last week, and the fall-out from the Carillion collapse advise caution in attributing all of the dip to weather effects.
** U.S.A. - April ADP Employment / FOMC Meeting **
- While the consensus for the ADP estimate (198K) is as ever roughly the same as for Private Payrolls (190K), the big misses in March (ADP 139K > payrolls) and February (Payrolls +67K > ADP) advises plenty of caution. One might even observe that the much steadier profile of the ADP in Q1 (ca. +240K each month) may in fact paint a truer picture of labour demand, than the official payrolls data, which are of course still subject to revision. This is not exactly the most hotly anticipated FOMC meeting, with no change expected on rates, and indeed no press conference, though the statement is expected to leave the door wide open for a June rate hike. Ultimately market reaction will boil to how the FOMC tweaks its statement, back in March, it observed "Information received since the Federal Open Market Committee met in January indicates that the labour market has continued to strengthen and that economic activity has been rising at a moderate rate. Job gains have been strong in recent months, and the unemployment rate has stayed low. Recent data suggest that growth rates of household spending and business fixed investment have moderated from their strong fourth-quarter readings. On a 12-month basis, both overall inflation and inflation for items other than food and energy have continued to run below 2 percent. Market-based measures of inflation compensation have increased in recent months but remain low; survey-based measures of longer-term inflation expectations are little changed, on balance." The inflation comments could be tweaked to acknowledge fractionally higher levels, and it will above all be interesting to see what observations are made in respect of trade tensions in terms of the outlook. In March the statement observed: "The economic outlook has strengthened in recent months. The Committee expects that, with further gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace in the medium term and labour market conditions will remain strong. Inflation on a 12-month basis is expected to move up in coming months and to stabilize around the Committee's 2 percent objective over the medium term. Near-term risks to the economic outlook appear roughly balanced, but the Committee is monitoring inflation developments closely." It seems less likely that any changes will be made to the rate outlook "The Committee expects that economic conditions will evolve in a manner that will warrant further gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run."
