MONDAY, MAY 01, 2023 – 09:25 AM

The busiest week of Q1 earnings season is now in the history books, and contrary to widespread expectations of collapse several blowout earnings reports by the megacaps helped push spoos to 4,200. And while earnings season slows down a bit this week (Apple is the last GAMMA stock set to report on Thursday), we have a sharp pick up in economic data with the ISM manufacturing report today (it beat expectations modestly but was still in contraction), the May FOMC meeting on Wednesday where the Fed is expected to hike another 25bps to 5.25%, the highest rate since 2007, the ECB decision on Thursday where most expect a 25bps hike in the deposit rate to 3.25%, but there is some chance that a 50bps hike could happen, before finally we get the April payrolls report on Friday which may surprise many with a sharp dip to the downside.

Courtesy of Rabobank and Bank of America, here are the key events this week:

  • Monday: We get the April ISM manufacturing survey. Markets will be looking for confirmation of a slowdown in manufacturing activity that was presaged by the Dallas Fed, Richmond Fed and Kansas City Fed data released last week.
  • Tuesday: House price data will be released for New Zealand and the UK. UK prices are seen declining 3.7% in the year to April. No estimate is published for NZ, but the prior month recorded a y-o-y fall of 10.5%, and that was before the RBNZ’s surprise 50bps rate hike.
    • In Australia the RBA meets to set monetary policy for the first time since pausing in April. The market is 100% priced for no-change to the cash rate, a view that we share here at Rabo. Governor Phil Lowe will be giving a press conference in the evening following the rates decision.
    • In Europe we will get the preliminary read for April Eurozone CPI. Here a headline figure of 7% y-o-y is expected, while the core figure is seen softening by 1 tick to 5.6%. US factory orders for the month of March will be released later in the day.
    • In the US, we will get the April auto sales which BofA expects to pick up to 15.1mn saar from 14.8mn in March. Unadjusted sales should be down 6% on a m/m basis. Sales at this level would imply solid y/y growth, although they would still be below trend. The BofA auto analysts note that industry commentary suggests that demand remains solid. However, they are concerned that regional bank stress could lead to a tightening in lending standards, which would weigh on sales going forward.
  • Wednesday: Aussie retail sales for the month of March will be released during the Asian session, but the main event for the day will be the FOMC rates decision where a final 25bps hike will end the Fed’s tightening cycle.  Note that the Fed will have the results of the 2Q Senior Loan Officer Opinion Survey (SLOOS) in hand for the May meeting, although the survey results will only be made public in the following week. The Beige Book shows that six of the 12 regional Fed banks reported further credit tightening since the January survey. This suggests that the SLOOS data will reinforce the case for a pause in June. However, there are two employment and CPI reports between the May and June meetings. Therefore, the Fed will not want to completely rule out a June hike, in case the data surprise strongly to the upside
    • The US ISM services index is also due out and expected to have improved slightly from 51.2 to 51.8 in April. The March report was a negative surprise as consensus was looking for the index to come in closer to 54.4. However, the index can be volatile at times and big swings in one direction are typically partially reversed in the following months
  • Thursday: The Caixin China manufacturing PMI will be released during the Asian session, but the ECB policy rate decision will be the headliner on the day. As noted above, we expect a 25bps hike in the deposit rate to 3.25%, but there is some chance that a 50bps hike could happen. ECB President Christine Lagarde will hold a press conference after the release.
    • On Thursday we get the latest initial jobless claims which are expected to increase to 238k in the week ending April 29 after last week’s surprising 16k decrease to 230k. Last week, the 4 week moving average also moved down to 236k from 240k. Continuing claims also edged down 3k in the week ending April 15. That could potentially be payback for the rise in the last few weeks and reflect the still existing labor market tightness.
    • On Thursday we will also get the Q1 nonfarm productivity which is expected to fall by 2% q/q saar in 1Q 2023 owing to a relatively soft headline GDP growth and strong growth in hours worked during the quarter. BofA’s forecast would imply productivity declined by 0.8% on a y/y basis, which would be its fifth consecutive decline. Meanwhile, we look for unit labor costs to rise by 5.8% q/q saar or 5.6% y/y.
  • Friday: The RBA Statement on Monetary policy will be released. This will include updates to the forecasts released back in February.
    • Rounding out the week we will see March German factory orders and April employment data for the US and Canada. US non-farm payrolls are expected to have added 180,000 new jobs and the unemployment rate moving one tick higher to 3.6%. In Canada 20,000 new jobs are expected and the rate also up 1 tick to 5.1%.

Finally, looking at just the US, Goldman notes that the key economic data releases this week are the ISM manufacturing report on Monday and the employment situation report on Friday. The May FOMC meeting is this week, with the release of the statement at 2:00 PM ET on Wednesday, followed by Chair Powell’s press conference at 2:30 PM. There are a few speaking engagements from Fed officials this week.

Monday, May 1

  • 09:45 AM S&P Global US manufacturing PMI, April final (consensus 50.4, last 50.4)
  • 10:00 AM Construction spending, March (GS +0.3%, consensus +0.2%, last -0.1%)
  • 10:00 AM ISM manufacturing index, April (GS 47.3, consensus 46.8, last 46.3): We estimate that the ISM manufacturing index rebounded 1pt to 47.3 in April, as rebounding global industrial activity more than offset a sentiment drag from US banking stress. Our GS manufacturing tracker rebounded by 0.6pt to 48.2.

Tuesday, May 2

  • 10:00 AM Factory orders, March (GS +1.1%, consensus +1.3%, last -0.7%); Durable goods orders, March final (last +3.2%); Durable goods orders ex-transportation, March final (last +0.3%); Core capital goods orders, March final (last -0.4%); Core capital goods shipments, March final (last -0.4%): We estimate that factory orders increased 1.1% in March following a 0.7% decrease in February. Durable goods orders increased by 3.2% in the March advance report, and core capital goods orders decreased by 0.4%.
  • 10:00 AM JOLTS job openings, March (GS 9,500k, consensus 9,690k, last 9,931k); We estimate that JOLTS job openings declined to 9,500k in March.
  • 05:00 PM Lightweight motor vehicle sales, April (GS 15.4mn, consensus 15.0mn, last 14.8mn)

Wednesday, May 3

  • 08:15 AM ADP employment report, April (GS +150k, consensus +150k, last +145k): We estimate a 150k rise in ADP payroll employment in April, reflecting mixed Big Data indicators and the persistent underperformance of ADP relative to nonfarm payrolls in recent months.
  • 09:45 AM S&P Global US services PMI, April final (consensus 53.7, last 53.7)
  • 10:00 AM ISM services index, April (GS 51.8, consensus 51.8, last 51.2): We estimate that the ISM services index rebounded by 0.6pt to 51.8 in April, reflecting a waning sentiment drag from banking stresses. Our survey tracker declined 0.5pt to 50.2.
  • 02:00 PM FOMC statement, May 3-4 meeting: As discussed in our FOMC preview, we expect the FOMC to deliver a widely-expected 25bp hike at its May meeting. We also expect the Committee to signal that it anticipates pausing in June but retains a hawkish bias, stopping earlier than it initially envisioned because bank stress is likely to cause a tightening of credit.

Thursday, May 4

  • 08:30 AM Initial jobless claims, week ended April 29 (GS 235k, consensus 240k, last 230k); Continuing jobless claims, week ended April 22 (consensus 1,873k, last 1,858k); We estimate that initial jobless claims edged up to 235k in the week ended April 29.
  • 08:30 AM Nonfarm productivity, Q1 preliminary (GS -1.9%, consensus -1.8%, last +1.7%); Unit labor costs, Q1 preliminary (GS +5.6%, consensus +5.4%, last +2.3%): We estimate nonfarm productivity growth of -1.9% in Q1 (qoq saar) and unit labor cost—compensation per hour divided by output per hour—growth of +5.6%.
  • 08:30 AM Trade balance, March (GS -$65.0bn, consensus -$63.5bn, last -$70.5bn): We estimate that the trade deficit narrowed by $5.5bn to $65.0bn in March.

Friday, May 5

  • 08:30 AM Nonfarm payroll employment, April (GS +225k, consensus +180k, last +236k); Private payroll employment, April (GS +200k, consensus +157k, last +189k); Average hourly earnings (mom), April (GS +0.35%, consensus +0.3%, last +0.3%); Average hourly earnings (yoy), April (GS +4.25%, consensus +4.2%, last +4.2%); Unemployment rate, April (GS 3.5%, consensus 3.6%, last 3.5%); Labor force participation rate, April (GS 62.6%, consensus 62.6%, last 62.6%): We estimate nonfarm payrolls rose by 225k in April (mom sa). We believe high but falling labor demand more than offset layoffs in the information and financial sectors and a modest hiring drag from reduced credit availability. The April seasonal factors have also evolved favorably relative to the pre-pandemic period and represent a tailwind worth 50-100k, in our view. Big Data employment indicators were mixed in the month but are generally consistent with solid or strong job growth. We estimate the unemployment rate was unchanged at 3.5%, reflecting a modest rise in household employment and unchanged labor force participation (at 62.6%). We estimate a 0.35% increase in average hourly earnings (mom sa) that boosts the year-on-year rate slightly to 4.25%, reflecting waning upward wage pressures and positive calendar effects.
  • 01:00 PM St. Louis Fed President Bullard (FOMC voter) speaks: St. Louis Fed President James Bullard will speak at the Economic Club of Minneapolis. Audience and media Q&A are expected. On April 18th, President Bullard argued that the FOMC should be “responsive to the incoming data through the summer into the fall,” and warned the Committee against “giving forward guidance that said we’re definitely not doing anything and then have inflation coming in too hot or too sticky.” On March 24th, after the FOMC’s March meeting, President Bullard noted that he had revised his terminal rate projection to 5.625% in the March SEP “in reaction to the stronger economic news and also on the assumption that the financial stress abates in the weeks and months ahead.”
  • 01:00 PM Fed Governor Cook speaks: Fed Governor Lisa Cook will deliver a commencement address at Michigan State University. Text is expected. On April 21st, Governor Cook argued that “if tighter financing conditions are a significant headwind on the economy, the appropriate path of the federal funds rate may be lower than it would be in their absence. But if data show continued strength in the economy and slower disinflation, we may have more work to do.” Earlier, on March 31st, Governor Cook had noted that “inflation in [nonhousing services] looks quite persistent amid strong post-pandemic demand for travel, dining out, and medical care.”

Source: BofA, Goldman, Rabobank