Another Big Week Ahead

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Now that the first estimates of Q1 growth in the US, China, and the EMU - which account for around 70% of the world's economy - have been reported, March's economic data will lose some of its gravitas. Indeed, the April PMIs and some other survey data, including business and investor confidence, and a series of regional Fed's manufacturing surveys have already given a taste for how the second quarter is beginning. And it is strong.

Outside of the final PMI readings, the most market-sensitive high-frequency data point, US April employment, is released at the end of the week. Another monster job report is expected after a 916 thousand increase in nonfarm payrolls in March. The early respondents to the Bloomberg survey have a median guesstimate of nearly 980 thousand jobs, though there are already some projections of a million or more. Private sector employment is anticipated to be around 15% higher than March's increase of 780 thousand.

The unemployment rate will most likely fall below 6%. This is significant because the 10- and 20-year averages are in 6.0%-6.1% range. This is not an attempt to resurrect the Phillips Curve; after all, unemployment was bouncing around 3.5% pre-COVID-19, wage pressures were mild, and inflation was undershooting its target.

The takeaway is that, as Fed Chair Powell has suggested, the economy is at an inflection point and activity is accelerating. And indeed, progress toward maximum employment is being achieved, even if there is more work to be done.

On April 2, when the US reported the well-above-expectations March nonfarm payroll, the 10-year Treasury yield settled at 1.72%. It has not seen that level since and, instead, dropped almost 20 bps before finding traction again. Arguably, yet not totally unrelated, the dollar depreciated against all the major currencies in April. The greenback fell against most emerging market currencies in April as well, and the JP Morgan Emerging Market Currency Index snapped a three-month slide.

If the US employment report is the most market-sensitive economic, then the UK's local elections are the political event of the week. In part, the election is a referendum on the government, its handling of the pandemic, and Brexit. Although the UK was hit particularly hard last year, the vaccine rollout appears to be exemplary, and barring a fresh setback, it will be among the first large countries to lift all restrictions (June 21).

The success of the vaccination drive appears to be offsetting the other knocks against the UK government. Even though the party in power tends to lose seats in the local election and the Conservatives have to defend more seats than Labour, the polls suggest the Tories will do well. There are 5000 council seats and 14 mayors contests, including London. It may not be an auspicious beginning for Starmer, the new Labour leader.

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Read more by Marc on his site Marc to Market.

Disclaimer: Opinions expressed are solely of the author’s, based on current ...

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