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Trading  | May 29, 2017

Focus in this holiday-shortened week will turn to US data, especially NFP, Fed speakers and Eurozone inflation. UK PMIs will also draw attention as elections approach. We also get GDP data from Canada, Sweden and Switzerland. In EM, there are MP meetings in Brazil & Israel. On Monday, with US, UK and Chinese markets closed, Euro FX and bond markets will be on Mario Draghi alert on Monday as the ECB president speaks to the European parliament.

NFP, Fedspeak, Eurozone inflation

After the FOMC Minutes and a mixed finish to US data last week (Q1 GDP revised higher though durables weighed on 2Q GDP), attention turns squarely to upcoming US data this week, particularly Friday’s payrolls report. The U.S. jobs report Friday should bolster the case for a rate hike, with a gain of 180,000 jobs expected.

With a June hike 80% priced, any Fed commentary will also be carefully parsed for clues that the Fed is comfortable with this pricing. With the blackout period looming, the Fed only has next week to push back against – or indeed affirm – market expectations if they so choose. After the FOMC minutes, most banks have brought forward their base case for June & September Fed hikes this year.

The June ECB meeting is also fast approaching, and expectations are that we will see a change in language, signaling a hawkish shift. This week’s Eurozone inflation data will therefore draw increased attention. BofA economists expect inflation to drop to 1.4% in May, from 1.9% in April, with core also expected to move 20bp lower, to 1.0% in May. Also in Europe, Euro-area data this week may show the strongest economic confidence in a decade on Tuesday. The preliminary headline inflation rate for the region will come on Wednesday.

The EIA is due to release its monthly supply reports Wednesday.

The week ahead in Emerging Markets

There are monetary policy meetings in Brazil and Israel. Brazil’s central-bank decision on Wednesday will probably see a cut of 75 to 100 basis points from the current 11.25 percent, according to economists. China’s May manufacturing PMIs on Wednesday could indicate that the nation’s 2017 growth has already peaked.

Daily calendar, via DB

As noted before, with markets closed in both the UK (Bank Holiday) and US (Memorial Day) today it’s an unsurprisingly quiet start to the week with M3 money supply growth for the Euro area in April the only data due.

We kick off Tuesday in Japan where the April retail sales and employment data is due. In Europe tomorrow we get Q1 GDP in France, CPI in Germany in May and confidence indicators for the Euro area in May. Over in the US tomorrow we’ll get personal income and spending for April along with the PCE core and deflator readings, followed by the March S&P/Case-Shiller house price index reading, May consumer confidence reading and May Dallas Fed manufacturing activity index print.

Turning to Wednesday, the overnight data in Asia comes from China where the official May PMIs are due. In Japan we’ll get industrial production and housing starts. In Europe on Wednesday we get May CPI in France, Germany unemployment in May, April money and credit aggregates in the UK and the May CPI report for the Euro area. In the US on Wednesday we’ll get the Chicago PMI for May and April pending home sales print.

Thursday kicks off in Japan again where Q1 capex data will be released along with the final manufacturing PMI revision. Manufacturing PMIs dominate the European session on Thursday with final readings due in the Euro area, Germany and France along with a first look at the periphery and UK. In the US we’ll also get the manufacturing PMI along with Q1 unit labour costs and nonfarm productivity, May ADP report, initial jobless claims, May ISM manufacturing and April construction spending.

It’s a quiet end to the week in Europe on Friday with PPI for the Euro area in April the only data due. In the US it’s all eyes on the May employment report, while we’ll also get the April trade balance print.

Away from the data we’re light on Fedspeak this week with Williams (today), Brainard (Tuesday), Kaplan (Wednesday) and Williams and Powell (Thursday) the only scheduled speakers. Over at the ECB we’ll hear from Nowotny and Draghi (today), Liikanen (Tuesday) and Villeroy (Thursday). The BoJ’s Harada also speaks on Thursday. Other things to note this week are UK PM May’s televised Q&A tonight with opposition leader Jeremy Corbyn and the China-EU summit beginning on Tuesday in Brussels.

Below is a visual summary of the week’s key events:

* * *

Finally, looking only as the US, the key economic releases this week are the ISM manufacturing report on Thursday, the employment report on Friday and PCE inflation and consumer confidence on Tuesday and trade on Friday. In addition, there are several scheduled speaking engagements by Fed officials this week. The Beige Book for the June FOMC period will be released on Wednesday. 

More from Goldman

Monday, May 29

  • Memorial Day. There are no data releases and equity and bond markets are closed.

Tuesday, May 30

  • 8:30 AM Personal income, April (GS +0.5%, consensus +0.4%, last +0.2%): Personal spending, April (GS +0.6%, consensus +0.2%, last flat); PCE price index, April (GS +0.16%, consensus +0.2%, last -0.2%); Core PCE price index, April (GS +0.12%, consensus +0.1%, last -0.1%); PCE price index (yoy), April (GS +1.65%, consensus +1.7%, last +1.8%); Core PCE price index (yoy), April (GS +1.49%, consensus +1.5%, last +1.6%): Based on the Q1 GDP revision and inputs from various price indices, we estimate that the core PCE price index rose 0.12% month-over-month in April and rose 1.65% from a year ago. Additionally, we expect that the headline PCE price index rose 0.16% and rose 1.65% from a year earlier, and we note the possibility that the headline measure rounds down to 1.6% on a year-over-year basis. We estimate a 0.5% increase in April personal income and a 0.6% drop in April personal spending (nominal, mom sa), and we note scope for upward revisions to March personal spending growth.
  • 09:00 AM S&P/Case-Shiller 20-city home price index, March (GS +1.3%, consensus +0.9%, last +0.7%): We expect the S&P/Case-Shiller 20-city home price index to rise 1.3% in the March report following a 0.7% increase in the prior month. The measure still appears to be influenced by seasonal adjustment challenges, and we place more weight on the year-over-year increase, which rose to 5.8% from 5.6% in February.
  • 10:00 AM Conference Board consumer confidence, May (GS 119.8, consensus 119.8, last 120.3): We forecast that the Conference Board consumer confidence index declined 0.5pt to 119.8 in May after retrenching in April from the cycle high in March. Our forecast reflects mixed consumer surveys in the month, as well as a sharp drop in the stock market that has now more than reversed.
  • 10:30 AM Dallas Fed manufacturing index, May (consensus +15.0, last +16.8)
  • 01:00 PM Fed Governor Brainard (FOMC voter) speaks: Federal Reserve Governor Lael Brainard will give a speech on the economy and monetary policy at a New York Association for Business Economics luncheon at the Cornell Club in New York. Audience Q&A is expected.

Wednesday, May 31

  • 08:00 AM Dallas Fed President Kaplan (FOMC voter) speaks: Dallas Federal Reserve President Robert Kaplan will participate in a moderated Q&A as a part of the C. Peter McColough Program on International Economics at the Council of Foreign Relations in New York City. Both audience and media Q&A is expected.
  • 09:45 AM Chicago PMI, May (GS 58.0, consensus 57.0, last 58.3): We expect the Chicago PMI to edge down to 58.0 in May, following a 0.6pt increase to 58.3 in the month prior. However, the index is likely to remain at a level consistent with growth in the manufacturing sector.
  • 10:00 AM Pending home sales, April (GS +1.2%, consensus +0.4%, last -0.8%): We expect pending home sales to rebound 1.2% in April. Regional housing data released so far suggest a bit of slowing year-to-date, but this is likely to be offset by calendar effects due to the timing of the Easter holiday. In the March report, pending home sales pulled back 0.8%, partially due to unseasonably cold weather in March. We have found pending home sales to be a useful leading indicator of existing home sales with a one- to two-month lag.
  • 02:00 PM Beige Book, June FOMC meeting period: The Fed’s Beige book is a summary of regional economic anecdotes from the 12 Federal Reserve districts. The last Beige Book reported that activity continued to expand across more districts. Labor markets continued to tighten, and wage pressures broadened; while consumer spending was more mixed, manufacturing activity expanded and the energy sector improved further. In the June Beige Book, we look for additional anecdotes related to the state of consumption, price inflation, and wage growth.
  • 08:10 PM San Francisco Fed President Williams (FOMC non-voter) speaks: San Francisco Fed President John Williams will give a speech at the Bank of Korea Conference on Global Economic and Financial Challenges. Audience and media Q&A is expected.

Thursday, June 1

  • 08:00 AM Fed Governor Powell (FOMC voter) speaks: Federal Reserve Governor Jerome Powell will give a speech titled “Thoughts on the Normalization of Monetary Policy” at the Economic Club of New York’s breakfast meeting. Audience Q&A is expected.
  • 08:15 AM ADP employment report, April (GS +185k, consensus +180k, last +177k): We expect a 185k increase in ADP payroll employment in May, reflecting a boost from the stronger headline payrolls growth in April utilized in the ADP model. We expect an additional modest boost from net strength in the financial and economic indicators also used in the model. The ADP report introduced methodological changes last fall and now offers more details by sector. While we believe the ADP employment report holds limited value for forecasting the BLS’s nonfarm payrolls report, we find that large ADP surprises vs. consensus forecasts are directionally correlated with nonfarm payroll surprises.
  • 08:30 AM Nonfarm productivity (qoq saar), Q1 final (GS -0.4%, consensus -0.5%, last -0.6%); Unit labor costs, Q1 final (GS +2.8%, consensus +2.9%, last +3.0%): We estimate Q1 non-farm productivity will be revised up 0.2pp to -0.4% in the second vintage, well below the 0.75% trend achieved on average during this expansion. We expect unit labor costs – compensation per hour divided by output per hour – for Q1 to be revised down by 0.2pp to 2.8% (qoq saar).
  • 08:30 AM Initial jobless claims, week ended May 27 (GS 240k, consensus 238k, last 234k): Continuing jobless claims, week ended May 20 (consensus 1,920k, last 1,923k): We estimate initial jobless claims rose 6k to 240k in the week ended May 27. We see few notable outliers in the state-level data from last week. Continuing claims – the number of persons receiving benefits through standard programs – have trended down further in recent weeks, suggestive of additional labor market improvement that we expect to continue.
  • 09:45 AM Markit flash US manufacturing PMI, May final (consensus 52.5, last 52.5)
  • 10:00 AM ISM manufacturing, May (GS 55.2, consensus 54.6, last 54.8): Regional manufacturing surveys were mixed in May, and we expect ISM manufacturing to rebound 0.4pt to 55.2 following a sizeable 2.4pt decline in the prior month. The Philly Fed (+16.8pt to +38.8) and Kansas City Fed (+1pt to +8) manufacturing sector surveys both strengthened, while the Richmond Fed (-19pt to +1) and Empire State (-6.2pt to -1.0) surveys both declined notably. Our manufacturing survey tracker—which is scaled to the ISM index—stands at 55.2 in May, down from 56.3 in April.
  • 10:00 AM Construction spending, April (GS +0.6%, consensus +0.5%, last -0.2%): We expect construction spending to bounce back 0.6% in April, following a 0.2% decline in March that was driven primarily by weaker nonresidential building. We expect the fading effects of unfavorable weather earlier this year to boost construction spending in April.
  • 05:00 PM Total vehicle sales, May (GS 16.8mn, consensus 17.0mn, last 16.8mn): Domestic vehicle sales, May (GS 13.3mn, consensus 13.2mn, last 13.1mn)

Friday, June 2

  • 8:30 AM Nonfarm payroll employment, May (GS +160k, consensus +180k, last +211k); Private payroll employment, May (GS +150k, consensus +180k, last +194k); Average hourly earnings (mom), May (GS +0.2%, consensus +0.2%, last +0.3%); Average hourly earnings (yoy), May (GS +2.5%, consensus +2.6%, last +2.5%); Unemployment rate, May (GS 4.4%, consensus 4.4%, last 4.4%): We estimate nonfarm payrolls increased 160k in May, a moderate slowdown from April’s +211k pace and somewhat below the three-month moving average of +175k. Our forecast reflects some softening in service sector employment surveys, a return to normal weather, and potential labor market constraints.
  • While labor market fundamentals remained broadly stable – featuring a further decline in continuing jobless claims – recent weakness in the ISM- and regional service sector employment components suggest hiring demand may be slowing at the margin. Additionally, May is also an important hiring month, and labor supply constraints in some geographies and industries may pose additional downside risk. Offsetting these concerns, the end of the federal hiring freeze in Mid-April suggests a possible above-trend reading in federal government employment.
  • We estimate the unemployment rate remained stable at 4.4%, based on our expectation that household employment will hold on to its sharp year-to-date gains. Finally, we expect average hourly earnings to increase 0.2% month over month and 2.5% year-over-year, reflecting the interaction of firming wage growth with unfavorable calendar effects.
  • 08:30 AM Trade balance, April (GS -$46.2bn, consensus -$45.5bn, last -$43.7bn): We estimate the trade deficit widened by $2.5bn in April. The Advance Economic Indicators report last week showed a sharp widening in the goods trade deficit, and we forecast a similar widening in the broader trade balance in this week’s report.
  • 12: 45 PM Philadelphia Fed President Harker (FOMC voter) speaks: Philadelphia Federal Reserve President Patrick Harker will give a speech on the economic outlook and the Philly Fed’s Economic Growth and Mobility Project at the Pennsylvania Economic Association’s 2017 conference. Audience Q&A is expected.

Source: Goldman, BofA, DB

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