Key Events This Busy Week: Earnings Bonanza, ISM, And The Fed Hiking 50 Into A Recession
After last week’s earnings deluge, which saw a whopping 45% of the S&P report…
… we now look to the data-packed week ahead.
The highlight of course is Wednesday’s FOMC meeting, which as DB’s economist team writes, they believe the Fed will kick tightening up a notch, lifting the fed funds target range by +50bps. The market agrees, and then some, with +51.8bps of tightening priced for the meeting, suggesting some market participants believe there’s still some risk of an even larger hike. The DB economists also believe that Powell will signal this is but the first of a series of potential +50bp hikes, as the Fed tries to get policy to neutral as quickly as possible in light of historic inflation. With the question of how fast the Fed needs to raise rates generally understood (answer: very), focus will shift to how far they need to hike rates to tighten financial conditions adequately. Also some will ask how much more the Fed will hike if the next GDP print is also negative, confirming the US is in a recession, but we’ll cross that bridge when we get to it…
That task will be augmented by balance sheet rundown, as the Fed has also signaled they will announce the beginning of QT, with the first assets likely rolling off the Fed’s portfolio in June. DB estimates that QT will proceed through next year, adding around three additional +25bp hikes of tightening, only to stop once the economy careens into recession at the end of 2023.
The BoE is similarly expected to raise rates and signal tighter balance sheet policy on Thursday. The MPC is expected to continue wrestling with the trade-off between slowing growth and intensifying inflation, with the latter winning out and bringing a +25bp Bank Rate hike, along with two more hikes coming this year. On the balance sheet, the MPC will likely confirm its intention to sell gilts later this year, with more guidance coming over the next few meetings and sales beginning in September.
There’s no rest for the weary, as the week ends with the US employment situation report, where consensus expects nonfarm payrolls to gain +390k, the unemployment rate to tick down to +3.5%, and average hourly earnings to gain +0.4%. Unemployment figures from Europe are also due this week. Production data, starting with ISM manufacturing out later today, also feature this week.
After last week’s mega-cap deluge, this week’s earnings are a sample platter drawing from travel, hospitality, and energy firms.
Here is a day-by-day calendar of events courtesy of Deutsche Bank
Monday May 2:
Data: Japan April vehicle sales, consumer confidence, Italy April manufacturing PMI, new car registrations, budget balance, March unemployment rate, US March construction spending, April ISM Index, Canada April manufacturing PMI
Earnings: NXP Semiconductors, Devon Energy, Expedia, MGM resorts, SolarEdge
Tuesday May 3:
Data: France budget balance, Germany April unemployment change, Eurozone March PPI, unemployment rate, US March factory orders, JOLTS job openings
Central banks: RBA decision
Earnings: Pfizer, Norsk Hydro, AMD, S&P Global, Airbnb, Estee Lauder, Starbucks, BP, BNP Paribas, Eaton, Deutsche Post, Marathon Petroleum, AIG, KKR, Hilton, DuPont, Teva, Lyft
Wednesday May 4:
Data: Germany March trade balance, UK March consumer credit, mortgage approvals, M4, Eurozone March retail sales, US April ADP employment change, ISM Services Index, March trade balance, Canada March international merchandise trade
Central banks: Fed decision
Earnings: Equinor, Maersk, Vestas, CVS, Volkswagen, Booking, Airbus, Regeneron, Enel, Uber, Marriott, Moderna, Pioneer, Barrick, Ferrari, Cheniere, EDF, eBay, Etsy, Chesapeake, Telecom Italia, Raiffeisen
Thursday May 5:
Data: China April PMIs, Germany March factory orders, April construction PMI, France March industrial, manufacturing production, UK April new car registrations, US Q1 nonfarm productivity, unit labour costs, initial jobless claims
Central banks: BoE decision, ECB’s Holzmann speaks
Earnings: Petrobras, Shell, ConocoPhillips, AB InBev, Shopify, EOG, ICE, Block, BMW, Credit Agricole, Vonovia, Apollo, DoorDash, ArcelorMittal, Zillow, Deutsche Lufthansa
Other: OPEC+ meeting
Friday May 6:
Data: Japan April Tokyo CPI, monetary base, Germany March industrial production, France Q1 private sector payrolls, Italy March retail sales, UK April construction PMI, US April change in non-farm payrolls, unemployment rate, average hourly earnings, labour force participation rate, March consumer credit, Canada April unemployment rate
Central banks: Fed’s Williams and Bostic speak, BoE’s Mann, Pill and Tenreyo speak, ECB’s Villeroy speaks
Earnings: Intesa Sanpaolo, adidas, ING
Other: SEC annual conference on financial market regulation
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Focusing on the US, Goldman writes 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 several other scheduled speaking engagements by Fed officials this week.
Monday, May 2
09:45 AM S&P Global US manufacturing PMI, April final (consensus 59.7, last 59.7)
10:00 AM Construction spending, March (GS +0.9%, consensus +0.8%, last +0.5%); We estimate a 0.9% increase in construction spending in March.
10:00 AM ISM manufacturing index, April (GS 58.0 consensus 57.6, last 57.1): We estimate that the ISM manufacturing index rebounded by 0.9pt to 58.0 in April. Business surveys were mixed in the month but in general are consistent with a somewhat higher level for the ISM. Additionally, the war in Ukraine and covid-related disruptions in China may have boosted the supplier delivery times component.
Tuesday, May 3
10:00 AM Factory orders, March (GS +1.5%, consensus +1.2%, last -0.5%); Durable goods orders, March final (last +0.8%); Durable goods orders ex-transportation, March final (last +1.1%); Core capital goods orders, March final (last +1.0%); Core capital goods shipments, March final (last +0.2%): We estimate that factory orders decreased by 1.5% in March following a 0.5% decrease in February. Durable goods orders increased by 0.8% in the March advance report, and core capital goods orders increased by +1.0%.
10:00 AM JOLTS job openings, March (consensus 11,200k, last 11,266k)
05:00 PM Lightweight motor vehicle sales, April (GS 14.4mn, consensus 13.9mn, last 13.3mn)
Wednesday, May 4
08:15 AM ADP employment report, April (GS +325k, consensus +395k, last +455k); We expect a 325k rise in ADP payroll employment in April. Our forecast reflects slowing but still solid underlying job growth in the month as well as a drag from the inputs to the ADP model.
08:30 AM Trade balance, March (GS -$110.0bn, consensus -$107.0bn, last -$89.2bn); We estimate that the trade deficit increased by $20.8bn to $110.0bn in March, reflecting a larger increase in imports in the advanced goods report related to the front-loading of imports from the Russia-Ukraine war.
09:45 AM S&P Global US services PMI, April final (consensus 54.7, last 54.7)
10:00 AM ISM services index, April (GS 58.3, consensus 58.5, last 58.3); We estimate that the ISM services index was unchanged at 58.3 in April. Our survey tracker declined by 1pt to 57.1, but our GSAI survey improved.
02:00 PM FOMC statement, May 3-4 meeting: As discussed in our FOMC preview, we expect the FOMC to deliver a 50bp hike and announce the start of balance sheet reduction at its May meeting. Going forward, we expect another 50bp hike in June followed by a deceleration to a 25bp/meeting pace of tightening for the rest of 2022, but see reasonably high chances that the FOMC will continue to hike in 50bp increments until reaching their median neutral rate estimate of 2.25-2.5%. We will therefore be paying close attention to any comments from Chair Powell at the press conference that suggest the FOMC intends to hike in 50bp increments beyond June.
Thursday, May 5
08:30 AM Initial jobless claims, week ended April 30 (GS 185k, consensus 180k, last 180k); Continuing jobless claims, week ended April 23 (consensus 1,400k, last 1,408k): We estimate that initial jobless claims edged up to 185k in the week ended April 30.
08:30 AM Nonfarm productivity, Q1 preliminary (GS -5.5%, consensus -5.2%, last +6.6%);Unit labor costs, Q1 preliminary (GS +10.5%, consensus +9.7%, last +0.9%): We estimate nonfarm productivity growth of -5.5% in Q1 (qoq saar) and unit labor cost—compensation per hour divided by output per hour—growth of +10.5%.
Friday, May 6
08:30 AM Nonfarm payroll employment, April (GS +350k, consensus +390k, last +431k); Private payroll employment, April (GS +325k, consensus +400k, last +426k); Average hourly earnings (mom), April (GS +0.4%, consensus +0.4%, last +0.4%); Average hourly earnings (yoy), April (GS +5.5%, consensus +5.5%, last +5.6%); Unemployment rate, April (GS 3.5%, consensus 3.5%, last 3.6%): We estimate nonfarm payrolls rose by 350k in April (mom sa), a slowdown from the +562k average pace in Q1. Labor demand remains very strong and dining activity has returned to normal, but job growth tends to slow during the spring hiring season when the labor market is tight. Additionally, Big Data indicators on the labor market deteriorated on net. On the positive side, the April seasonal factors have evolved favorably in recent years and represent a tailwind of roughly 100k, in our view. We estimate a one-tenth drop in the unemployment rate to 3.5%, reflecting a solid or strong rise in household employment partially offset by another 0.1pp rise in labor force participation to 62.5%. We estimate a 0.4% rise in average hourly earnings (mom sa) that lowers the year-on-year rate by one tenth to 5.5%. We continue to expect upward pressure on wages from labor shortages—albeit less so than during the fall and winter—and we assume a modest boost in April from calendar effects.
09:45 AM New York Fed President Williams (FOMC voter) speaks: New York Fed President John Williams will deliver opening remarks at an event on environmental economics and policy hosted by the New York Fed. In an interview on April 14th, President Williams said that it “does make sense for [the Fed] to move expeditiously towards more normal levels of the federal funds rate,” and argued that the FOMC didn’t have to “decrease employment or raise unemployment so much—it’s just take the froth, if you will, out of the economy and get it on a more sustainable basis.”
03:00 PM Atlanta Fed President Bostic (FOMC non-voter) speaks: Atlanta Fed President Raphael Bostic will deliver a commencement address at Georgia Tech. Text is expected. On April 19th, President Bostic said that while he thinks “the economy is in a place where it can stand on its own,” real personal income has “decreased over the last 6 or 7 months,” and noted that “if that continues, there is a real case to be made that aggregate demand will slow down in ways that … will allow us to not have to push as hard [on monetary policy tightening].” President Bostic also stressed that a 75bp hike “is not something that’s really on my radar right now,” and that he expects some of the moderation in inflationary pressures to happen “by actions and developments that may not be associated with [the Fed],” for example “if we can get supply chains to resolve, if we can start to see people come back into the labor force.”
07:15 PM Fed Governor Waller (FOMC voter) and St. Louis Fed President Bullard (FOMC voter) speak: Fed Governor Christopher Waller and St. Louis Fed President Bullard will take part in a panel discussion on monetary policy strategy hosted by the Hoover Institute. On April 13th, Governor Waller argued that the Fed should “get to above neutral certainly by the [latter] half of this year, and we need to get closer to neutral as soon as possible.” In earlier remarks, on March 24th, Governor Waller noted that “at a later date, certainly not anytime soon, the FOMC may start to consider sales of MBS” as part of its balance-sheet normalization process. We expect the FOMC to strongly consider selling MBS after the balance sheet reaches its equilibrium size and the goal shifts to tilting the composition toward Treasuries.
08:00 PM San Francisco Fed President Daly (FOMC non-voter) speaks: San Francisco Fed President Mary Daly will deliver a commencement speech at Utah Valley University. In her last public appearance, on April 20th, President Daly noted that “moving purposefully to a more neutral stance that does not stimulate the economy is the [Fed’s] top priority,” and that her “modal outlook is that we’ll have a smooth landing that’ll be somewhat below trend growth.”
Source: DB, BofA, Goldman
Mon, 05/02/2022 – 09:44