NEWS / Foreign Exchange

Jobs, Sentiment and Central Banks

• The week ahead - Jobs, sentiment and central banks
• Informa Global Markets Calendar for the Week ahead

The Week Ahead

Jobs, Sentiment and Central Banks

The Dollar continues to remain under pressure with the FINEX Dollar basket drifting off and unable to hold onto its recent gains. Nonetheless, after the prior week??™s reversal of carry aversion, this week has seen more range bound conditions.

Next week will be a holiday shortened week, but still contains a number of high points, even on Good Friday when the US releases its next set of non-farm payrolls data, although still a short trading day in the US. Last month??™s release showed the slowest pace of hiring since January 2005, and little improvement is expected in this release. Ahead comes the usual Challenger layoffs and APD hiring reports (both Wednesday) which now set the tone for Friday??™s release.

In addition, a whole series of real economy/survey is released including the manufacturing and service sector ISMs Monday and Wednesday. The former moved above the 50 "boom-bust" benchmark in February, but the risk is for slippage back towards this level, although the non-manufacturing index could be more perky. Pending February home sales are out on Tuesday. Overall, any unexpected softness in the Dollar is likely to compound the US unit??™s struggles as markets attempt to navigate their way through the new post- FOMC environment.

Canada also has the March monthly jobs release, as well as the Manufacturing PMI, in this case both are on Thursday. The Lonnie has been well supported after the surprising jump in the BoC??™s measure of coreinflation to record its best levels since December. Inflation has effectively removed the risk of a rate hike, and the jobs release could aid this sentiment. Canada has been accumulating net gains in jobs since August last year, and the March report is unlikely to break this run while the unemployment rate is down to a multidecade record low. At the same time, the PMI remains elevated. It jumped particularly sharply in Feb, so there could be some give back, but still indicate strong expansion. February building permits released Wednesday, although the BoC appears to have removed this as an upside risk indicator - the number could dump into the red.

The central bank April round of policy meetings start off with two particularly uncertain outcomes. Markets will really be on the edge for the RBA??™s rate decision Tuesday. Expectations have moved into overdrive since RBA??™s Edey hawkishly warned mid-March that inflation was more likely to be too high than too low over the next 2 years. From a prior steady stance, the market is now calling for a 50:50 chance of a hike and a full move by June. However on balance, with earlier views by Governor Stevens in fact similar to Edeys and some uncertainty looming over the housing market and US economy; we expect RBA to leave rates on hold, waiting for Q1 CPI on the 24th April and further leads before considering pulling the trigger again. Further data leads could also emerge during the week with February retail sales and building approvals Monday, although Tuesday??™s February trade release is likely to be overshadowed by the RBA. Of the data, retail sales will be eyed closely, and could well be the last minute decider. With the jobs market robust, retail sales growth probably held firm after January??™s solid gain. Building approvals which fell in January should meanwhile nudge back up as the dampening effect of last year??™s rate rises eases. The trade deficit could widen out to over Usd 1bn amidst a solid imports.

Wednesday/Thursday sees the BoE/MPC meeting. Given the data slate since the March meeting, particularly the unexpected jump in February inflation after cooling in January, the outcome to the conclave is far more open. Even the surprise 8:1 vote for unchanged rates this month, with serial dove Blanchflower dissenting for a cut, does not provide any real guide to MPC thinking. MPC speeches have also been rate hike friendly, and serial hawks Gieve and Sentance are likely to resume their calls for a hike. Key is whether they are joined by other hard liners, Barker, King, Lomax and Tucker. Moreover, the BoE has caught markets on the hop in two of the last three meetings - August last year and January this year, with the latter ahead of the February BoE Quarterly Inflation report - the next one is due mid-May. However, if rates are left unchanged, no statement is issued and markets will have to wait for the minutes two weeks later to discern the MPC balance.

The UK data slate could also provide potential pointers. Survey and anecdotal evidence suggests somewhat better times ahead for February industrial and manufacturing production (Thursday) after the trend y/y decline into the start of the year, albeit still at relatively lowly levels. However, the March CIPS manufacturing PMI (Monday) could correct after jumping sharply the prior month while Wednesday??™s CIPS service PMI may come off again, but still be at relatively elevated levels. But the March Halifax house price index (Monday) should reinforce the buoyant tone of already released housing surveys and Thursday??™s NIESR estimate of Q1 GDP be more positive.

PMIs also dominate in Euroland and Switzerland. National surveys have been somewhat mixed - Belgium/France weaker but Germany/Italy steady to firmer, suggesting that the overall Euroland manufacturing PMI (Monday) will stay around the February level. On the whole sentiment remains quite elevated, despite being at the bottom of the narrow range that has prevailed in recent months, although higher oil prices risk a slightly softer reading. Meanwhile, the services PMI (Wednesday) could tick up from February??™s slightly disappointing outturn. Taken together the numbers imply that the Eurozone sustained momentum through Q1, albeit at a slightly lower price than Q4. German February industrial orders (Wednesday) and production (Thursday) should reinforce this. While orders dipped in January, underlying momentum in both series remains strong.

As for Switzerland, the March SVME PMI (Monday) could rise for the second consecutive month after the strong KoF outturn, albeit still below November??™s all time high. Nonetheless, the March inflation print the following day is likely to remain extremely benign, but this is unlikely to disturb market expectations of gradual monetary policy normalisation.

Staying on the sentiment theme, next week sees the BoJ??™s Quarterly Tankan (Sunday). In the most closely watched gauge of business sentiment, confidence amongst large manufacturers could deteriorate slightly from prior 2 year high. That among large non manufacturers is, however, set to improve slightly, consistent with the recovery in consumption. Besides the Tankan, March monetary base is also due on early Monday with the week wrapped up by February??™s economic indicators. The leading indicator could come in below 50 again for the fourth straight month.