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Ending on the payrolls lottery

• The week ahead??“ Ending on the payrolls lottery
• Informa Global Markets Calendar for the week ahead

THE WEEK AHEAD

ENDING ON THE PAYROLLS LOTTERY

Dollar down has continued to be the theme for the week with high yielders in general continuing to shine. Even central bank disappointments have significantly failed to turn the tide after the initial knee jerk reaction. On the broad Dollar index the risks are building for a test of the 80.53 low recorded at end-2004 when the Dollar was last under heavy pressure after the September 2003 G7 accord that called for greater currency flexibility.

Over all this hangs the US with a massive slate of data that culminates in April non-farms payrolls Friday. The March payroll data came in relatively strong, and the April read risk some pay back. Early indications may come from the partial ADP and Challenger releases due Tuesday, although in the past these have not necessarily proved a reliable guide to the NFP outturn. Into this are thrown the April factory and non-factory ISMs (Tuesday and Thursday). The factory ISM has been hovering just above the 50 "boom-bust" benchmark. Prior regional data for April has been slightly to the soft side, and any edging back below the 50 level could accelerate Fed rate cut expectations, particularly with the consensus expecting a slight further recovery in the index. Another drop would raise market ante in terms of Fed rates as in the past manufacturing ISMs below 50 have been associated with rate reductions. As a precursor, the Chicago April PMI (Monday) shot up from below 50 to above 60 in March, but this "bubble" could well burst. The nonfactory ISM recorded its weakest reading since April 2003.

Added to all this is the March PCE data at the start of the week that includes the Fed's favoured measure on inflation. This still remains above the top of the Fed's comfort zone at 2%, but key will be trends in the income and spending components as a foretaste of the likely behaviour of consumers. Personal income showed a hefty rise in January, but increased by a slower extent in February, whilst expenditure showed roughly the same m/m rises. Also, given the focus on the housing market, March pending home sales (Tuesday ) is also of note ??“ the number could turn south which will do little a quieten concerns on this side of the economic balance sheet. Allied to all this is the usual host of Fed speakers, including Bernanke (Tuesday) ahead of the following week??™s FOMC meeting.

After a hiatus, the Eurozone has the start of the month deluge of key data, including, in common with the UK and US, key April manufacturing PMI sentiment indices Wednesday, and services Friday, plus broad EMU wide indices Monday. Economic confidence indicators rose to 6 yr highs in March, though the extent of the latter was not fully reflected in the major components - the business climate held unchanged, and there could be some more payback, allied to higher oil prices, in April. The stalling of the business side was reflected in the March manufacturing PMI which slipped slightly, but still remains in a narrow range just below the October peak. However, the already released German Ifo surprised on the upside with little impact from a strong Euro being felt, suggesting upside risk. The services PMI slipped slightly in March, but remains at very elevated levels. Both these two are likely to add weight to the ECB??™s tightening stance.

But more concerning, from the ECB??™s perspective, was top billing taken by input prices in the manufacturing PMI, particularly with the headline flash CPI flirting just under the 2% level. The April flash is released Monday, although base effects could generate some temporary cooling. But despite this, March M3 should continue to unsettle the ECB, having risen significantly of late to more than double the ECB??™s 4.5% ref level. In this context, the March German unemployment data evidences that the recovery in the labour market has gained momentum and this should be maintained into April Wednesday. Note the final round of the French Presidential elections next Sunday.

Switzerland and the UK also have PMIs. The manufacturing index for the latter slipped slightly in March, while the service sectors moved in the opposite direction. However, anecdotal evidence points to an outturn for the two UK series stabilising/strengthening. The same applies to the Swiss manufacturing PMI read after the upside shift to the March KoF. However, other data for these two may give conflicting reads for central bank policy. The UK Apr Halifax house price survey and CBI distributive trade survey (both Tuesday) should remain strong, although the CBI may slip slightly after a robust March print). In contrast Swiss April CPI (Thursday) is likely to remain benign and unemployment (Monday) steady.

On the central bank front the Riksbank meets Thursday (announces Friday). Given the data since then has not changed the status quo, rates are likely to stay at 3.25%. However, after the minutes of the late- March meeting showed Board Member Oberg dissenting for a rise, there still remains some probability of a hike. Sweden??™s manufacturing PMI (Wednesday) is also likely to be stronger. Nonetheless, any Sek disappointment at an unchanged Riksbank decision is likely to be relatively short lived.

Japan has a relatively quiet week with the ???golden Week??? holidays seeing financial centres closed on Monday, Thursday and Friday. In between, there is a bare minimum of data on tap; with only March preliminary wage data on Tuesday, followed by April??™s monetary base on Wednesday.

Australia stars with the first central bank meeting of the new month, but even more so its follow up quarterly Statement on Monetary Policy (MPS) on Friday which provides hints of future policy direction. With core inflation slipping further within its target 2-3% band and producer prices incredibly benign, views have changed drastically, with RBA set to leave rates on hold Tuesday. However, with economic growth continuing to be robust, the labour market drum tight, plus expectations of a May budget stimulus; inflationary risks still remain poised to the upside. Thus the RBA is more than likely to adopt a firm tightening bias in the MPS. Eyes will be on any changes to its inflation outlook, especially since its 2007 prediction of 2.75% in February??™s MPS has already been more than achieved. On Monday, TDs inflation gauge will be eyed for future inflation leads; whilst credit growth is set to have continued at a solid pace in March. Trade data (Friday) should see the deficit widening back out in March.

In NZ the wk is quiet. Monday??™s March credit growth should remain robust but with the building consent trend to continue easing. Finance Minister Cullen has a pre-budget speech on Thursday.

Lastly, turning to Canada, the week starts of with the February GDP print. This is likely to be down by the impact of the 2-week Canadian National rail strike and a fire in an Ontario refinery which curtailed gasoline supplies. Thus, there was likely no growth in February, but from the BoC??™s perspective, the one-off factors that suppressing growth will unwind and boost growth in March. Hence as an indicator of performance, the February GDP number is not particularly reliable. A better measure is likely to be the April manufacturing PMI Friday. This jumped sharply in March and some payback is likely in April with seasonal factors playing a significant role ??“ the March print was almost identical to that a year earlier. Industrial product and raw material prices are also released Tuesday ??“ energy has been the principal mover behind this index.