There is no market moving data in the European session (unless we get a big jump in the Eurozone unemployment rate). For this reason, we will likely see range-bound price action heading into the US NFP and ISM Services PMI release. So, in the big picture, nothing has changed We need something that can change current expectations to stimulate a more sustained market reaction. The market is discussing two possible scenarios:
- Growth with slow inflation to target and eventually cut interest rates by the Federal Reserve.
- Inflation is stuck above target or re-accelerating with the Fed eventually having to raise interest rates.
Today's data could change or strengthen these expectations in the short term. So, what should we look for?
US Non-Farm Payrolls Report at 12:30 GMT (08:30 ET)
The US Nonfarm Payrolls report is expected to show 243,000 jobs added in April versus 303,000 in March with the unemployment rate expected unchanged at 3.8%. Average hourly earnings on an annual basis are expected to reach 4.0% versus 4.1% previously, while the monthly figure is expected to reach 0.3% versus 0.3% previously. Expectations indicate good numbers Given that all the other jobs data we've gotten so far has been strong. The only “weak” reading came from the current situation indicator in the US Consumer Confidence report. This is generally related to the unemployment rate, so we may see a rise to 3.9% but it should not be a meaningful development since the forecast range is between 3.8% and 3.9% anyway.
The main focus should be on the average hourly wage
A flexible labor market with low wage growth is good for growth and inflation. On the other hand, if we get a hot report all over the place, the market will consider that to be extreme. In fact, we have already seen the market getting spooked by the US ECI report for the first quarter, so if we once again see hot data on the wages side, the market should consider that to be bad news for future inflation.
It goes without saying that if we see bad numbers everywhere, It will be a big surprise and the market will likely bring back more interest rate cuts They may resort to risk as recession fears may resurface.
Unemployment rate in the United States
US Services PMI at 14:00 GMT (10:00 ET)
The US Services Purchasing Managers' Index (ISM) is expected to come in at 52.0 versus the previous 51.4. Last month, the index missed expectations with some general weakness in the sub-indices, especially the prices component which fell to the lowest level since March 2020. The latest S&P Global US services PMI also missed expectations. The commentary was downbeat even pointing to strong layoff activity, although there was also good news on the inflation front. Although the ISM Manufacturing PMI was mixed with the S&P World PMIs as the data came in slightly below expectations but the commentary was generally positive and showed a significant jump in the prices paid index and the employment component rose higher.
The main focus should be on prices and labor components. If you remember, we had a strong hawkish reaction last time when the price index fell to its lowest level in 4 years. If we get another decline or at least not a major change from current levels, the market may consider that as good news for inflation, and even if it exceeds the headline number, it could lead to positive risk sentiment. This will of course need to be coupled with the US NFP report.
Conversely, if we see a jump in prices paid, it could lead the market to believe that last month's number was just a blip (it actually happened with January's employment number) and provoke a hardening reaction.
Purchasing Managers' Index (ISM) for US services