Key Events This Week: Payrolls, PMIs And Politics
Previewing the week’s main event, DB’s Jim Reid writes that unless there is a marked deterioration across the whole sweep of labor market indicators within the report, Friday’s jobs report will be the catalyst to cement the November taper barring an exogenous or market shock. Investors will also be increasingly focused on the US debt ceiling deadline, whilst Congress simultaneously grapples with the infrastructure bill and the reconciliation package. Elsewhere on the political scene, coalition negotiations in Germany will be important to look out for, as the parties seek to form a government after the election.
To be sure, the US jobs report will be the main macro highlights this week, and follows last month’s release that strongly underwhelmed expectations, with nonfarm payrolls growth of just +235k in August being the slowest since January. So another poor release would not be welcome news even if it did reflect labor shortages. In terms of what to expect this time around, economist consensus forecasts a pickup in September, with nonfarm payrolls growing by +470k, and the unemployment rate ticking down to a post-pandemic low of 5.1%. Remember in the weak report last month, yields rose on the day as markets focused on the wage increases rather than the poor headline number. As noted at the time, the bond reaction to last month’s report probably helped signal the end of the extreme positive technicals and short positioning in treasuries. Over the summer strong inflation and decent data couldn’t help treasuries sell off, indicating bullet proof technicals but the period around last month’s release seemed to turn the tide the other way a bit.
The other important data release this week will be the global services and composite PMIs out tomorrow, which will give an indication of how the economy has fared into the end of Q3. That said, the flash readings we’ve already had have indicated slowing growth momentum across the major economies, so it will be interesting to see where things progress from here.
Turning to the US, negotiations in Congress will be in focus as legislators face the debt ceiling deadline this month (expected to be breached around October 18th according to Treasury Secretary Yellen last week), just as the Democrats are also seeking to pass a $550bn bipartisan infrastructure bill and a reconciliation package. On Saturday, Speaker Pelosi seemed to suggest that the new deadline was October 31st for the bipartisan bill which highlights how much difference there still is between the progressives and moderates on the reconciliation package. Will they eventually find a compromise for a lower amount than the original $3.5tn (maybe around $2tn) that makes nether side happy but gets the legislation through?
Staying on the political scene, there’ll also be a focus on coalition negotiations in Germany, where exploratory talks have now begun between the parties. The Greens and the liberal FDP will be key to forming a majority in the new Bundestag, with 210 seats between them, as both the centre-left SPD and the conservative CDU/CSU bloc still hope to lead the next coalition. Initial exploratory talks began with the SPD yesterday, and the FDP have also spoken to the CDU/CSU, with the Greens set to follow tomorrow.
On the central bank side it’s a quieter week ahead, with the two G20 policy decisions expected from the Reserve Bank of Australia (tomorrow) and the Reserve Bank of India (Friday). In Australia, economists generally expect no change in policy and a reaffirmation of their dovish policy outlook. Samd in India, where economists also expects the MPC to keep all key policy rates unchanged, with many expecting a reverse repo rate liftoff starting from December.
Day-by-day calendar of events
Monday October 4
Data: US August factory orders, final August durable goods orders, core capital goods orders
Central Banks: Fed’s Bullard, BoE’s Ramsden, ECB Vice President de Guindos and ECB’s Makhlouf speak
Politics: Extraordinary Diet session in Japan to elect Prime Minister
Tuesday October 5
Data: Services and composite PMIs from Japan, India, Russia, Italy, France, Germany, Euro Area, UK, Brazil and US, US September ISM services index, France August industrial production, Euro Area August PPI, US August trade balance
Central Banks: Reserve Bank of Australia decision, ECB President Lagarde, ECB Holzmann and Fed’s Quarles speak
Wednesday October 6
Data: Germany August factory orders, Germany and UK September construction PMI, Euro Area August retail sales, US September ADP employment change
Central Banks: ECB’s Centeno speaks
Thursday October 7
Data: Japan preliminary August leading index, Germany August industrial production, Italy August retail sales, US weekly initial jobless claims, US August consumer credit
Central Banks: PBoC Governor Yi Gang, ECB’s Villeroy, Elderson, Holzmann, Lane, Schnabel, Fed’s Mester and BoC Governor Macklem speak
Friday October 8
Data: Japan August current account balance, China September services and composite PMI, US September change in nonfarm payrolls, unemployment rate, average hourly earnings
Central Banks: Reserve Bank of India policy decision, ECB’s Panetta speaks
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Finally, focusing just on the US, here is Goldman noting that the key economic data releases this week are the ISM services index on Tuesday and the employment report on Friday. There are a few scheduled speaking engagements from Fed officials this week.
Monday, October 4
10:00 AM Factory orders, August (GS +0.9%, consensus +1.0%, last +0.4%); Durable goods orders, August final (consensus +1.8%, last +1.8%); Durable goods orders ex-transportation, August final (last +0.2%); Core capital goods orders, August final (last +0.5%); Core capital goods shipments, August final (last +0.7%): We estimate that factory orders increased 0.9% in August following a 0.4% increase in July. Durable goods orders rose 1.8% in the August advance report and core capital goods orders increased 0.7%.
10:00 AM St. Louis Fed President Evans (FOMC non-voter) speaks: St. Louis Fed President James Bullard will take part in a virtual panel discussion on “Mastering the Economic Recovery.”
Tuesday, October 5
08:30 AM Trade Balance, August (GS -$71.1bn, consensus -$70.6bn, last -$70.1bn); We estimate that the trade deficit increased by $1.0bn to $71.1bn in August, reflecting a larger increase in imports than exports in the advance goods report.
09:45 AM Markit services PMI, September final (consensus 54.4, last 54.4)
10:00 AM ISM services index, September (GS 59.2, consensus 59.9, last 61.7): We estimate that the ISM services index declined 2.5pt points to 59.2, reflecting a drag from the Delta variant on virus-sensitive services and the elevated level of the ISM measure relative to other service-sector surveys. Our services tracker fell 2.7pt to 55.5.
01:15 PM Fed Vice Chair for Supervision Quarles (FOMC voter) speaks: Fed Vice Chair for Supervision Randal Quarles discusses the Libor transition at a conference hosted by the Structured Finance Association in Las Vegas. Prepared text and moderated Q&A are expected.
Wednesday, October 6
08:15 AM ADP employment report, September (GS +375k, consensus +430k, last +374k); We expect a 375k rise in ADP payroll employment for the month of September, similar to the 374k gain in August. Our forecast assumes firm underlying job gains but incorporates a drag from the August nonfarm payroll data, which is one of the inputs to the ADP model.
Thursday, October 7
08:30 AM Initial jobless claims, week ended October 2 (GS 333k, consensus 350k, last 362k); Continuing jobless claims, week ended September 25 (consensus 2,770k, last 2,802k); We estimate initial jobless claims decreased to 333k in the week ended October 2.
11:45 AM Cleveland Fed President Mester (FOMC non-voter) speaks: Cleveland Fed President Loretta Mester takes part in a virtual panel discussion on inflation dynamics hosted by the Cleveland Fed and the European Central Bank. Audience Q&A is expected.
Friday, October 8
08:30 AM Nonfarm payroll employment, September (GS +600k, consensus +470k, last +235k); Private payroll employment, September (GS +500k, consensus +450k, last +243k); Average hourly earnings (mom), September (GS +0.4%, consensus +0.4%, last +0.6%); Average hourly earnings (yoy), September (GS +4.6%, consensus +4.6%, last +4.3%); Unemployment rate, September (GS 5.1%, consensus 5.1%, last 5.2%): We estimate nonfarm payroll growth picked up to +600k in September following the disappointing 235k gain in August (mom sa). Remaining federal enhanced unemployment benefits expired on September 5, and we believe the associated easing in labor supply constraints began to boost job growth in September. But because the survey week ended only two weeks later (September 18), we continue to expect a larger impact in the October report. We also expect the reopening of schools to contribute roughly 150k to September job growth. Despite these tailwinds, Big Data employment measures were mixed, and dining activity rebounded only marginally after falling in August due to the Delta variant. We estimate a one-tenth drop in the unemployment rate to 5.1%, reflecting a strong household employment gain but a 0.1-0.2pp rise in the labor force participation rate, the latter driven by expiring benefits and the easing of childcare constraints. We estimate a 0.4% rise in average hourly earnings (mom sa, and +4.6% yoy), reflecting continued wage pressures partially offset by negative calendar effects.
10:00 AM Wholesale inventories, August final (consensus +1.2%, last +1.2%)
Source: DB, Goldman, BofA
Mon, 10/04/2021 – 09:56