The Macro Outlook for w/c 5 June 2023

by Kim | Jun 5, 2023

Key events this week – US ISM Services PMI, RBA & BoC policy decisions, global services PMIs

Recap from last week

US labor market data provided conflicting signals from the latest non-farm payrolls report and household employment survey. But with so much monetary policy tightening already done, Fed speeches this week continued to signal a possible skip/pause for next week. We are now heading into the blackout period ahead of next week’s FOMC meeting.

US non-farm payroll growth in May was much stronger than expected at +339k (expecting a further slowdown to +180k). The prior two months were revised higher by approx. +90k jobs. This lifted the growth momentum back above recent averages. Despite the stronger payrolls growth, the household survey recorded a fall in employment and this flowed through to an increase in unemployment. Across the 16yrs+ group, the fall in employment was mostly PT jobs, but FT employment also declined slightly. Another view of the fall in employment was that private sector wage and salary employment increased, but was more than offset by falls in government and self-employment for the month. The unemployment rate increased from 3.4% in Apr to 3.65% in May. Last month we noted that the unemployment rate had been rising within the core working age group (25-54yrs). This trend continued in May and the 25-54yr unemployment rate has increased, albeit slightly, from a historically low level of 2.95% in Dec to +3.25% in May. The average hourly earnings data showed only a slight slowdown in wage growth from +4.4% in Apr to +4.3% in May.

The Fed Beige Book report indicated little change in growth momentum between Apr and May. Only two districts reported worsening conditions; New York and Philadelphia. The report noted that financial conditions were stable or somewhat tighter across all of the districts. High inflation  “continued to stress the budgets of low-and moderate-income households”.

The US ISM manufacturing PMI showed no improvement in manufacturing growth momentum in May, but employment growth remained stable.

The global manufacturing PMI showed no change in growth momentum, with the headline index remaining in slight contraction territory. Underlying that, output growth improved slightly as new orders continued to contract. Global input and output prices fell for the first time in three years.

Outlook for the week ahead

There will be two central bank meetings this week. Firstly, the RBA is expected to keep rates on hold this month at 3.85%. Over the last week, markets have priced in another hike around Aug/Sep – especially after the increase in the minimum wage and another sticky inflation reading. Aus GDP growth for Q1 will be released and is expected to be higher at +0.8%.

Secondly, the Bank of Canada is expected to stay on hold this month at 4.5%. The latest Canadian labor market survey will be released, and employment growth is expected to ease while the unemployment rate is expected to stay at a low 5%.   

This week we get a reading on the globally stronger services growth momentum. The US ISM services PMI will be released this week along with the suite of S&P global services PMIs. In the US, the ISM services PMI has shown some slowing of momentum while the S&P services PMI has recorded stronger momentum.

Other data includes; US Factory Orders for Apr, German Factory Orders & Industrial Production for Apr, Europe and Japan GDP for Q1, and China CPI for May.

This week, the US Treasury will auction and settle approx. $352bn in ST Bills, including Cash Management Bills (CMB), raising approx. $89bn in new money.

QT Jun: Approx $8.5bn in ST Bills will mature on the Fed balance sheet this week and will be reinvested. Approx $2.2bn in ST Bills will mature and roll off the Fed balance sheet.

More detail (including a calendar of key data releases) is provided in the briefing document – download the pdf below:

Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net