Week Ahead – PMI Data And U.S. NFP To Dominate; RBA Meeting Also Eyed

The coming week will be a busy one for PMI data as China and the UK will see the first and only PMI releases for April, while for the Eurozone and the US, the final readings are due. Also in focus next week is the nonfarm payrolls report in the United States, as well as the RBA’s scheduled policy meeting.

China PMI expected to improve further

Manufacturing activity in China has been on a downward trend since the middle of 2014, according to China’s National Bureau of Statistics’ PMI measure. But March saw a surprise turnaround, with the PMI index turning positive for the first time in 9 months. Activity is expected to improve further in April, with the manufacturing PMI forecast to rise to 50.4 from 50.2 in March when released on Sunday.

On Monday, the alternate Caixin measure, which focuses more on smaller and medium-sized companies, is also expected to show an improvement, rising to 49.9 in April from 49.7 in the prior month. However, the reading would still be below 50, which indicates contracting activity and could be a potential sign that a broader recovery will require some time.

UK PMI to confirm moderating growth

British economic growth slowed in the first three months of the year to below trend levels, highlighting the ongoing struggle of UK manufacturers. The latest manufacturing PMI reading, out on Tuesday, is expected to show only a marginal improvement in the first month of the second quarter, with the index increasing slightly from 51.0 to 51.2.

The construction and services PMIs will follow on Wednesday and Thursday respectively. Construction activity is forecast to slow slightly in April, with the reading dropping from 54.2 to 54.0. The services PMI is not expected to thrill either, and is forecast to drop slightly from 53.7 to 53.6 in April. However, with sterling driven mainly by Brexit developments lately, the data is unlikely to have a major impact on the British currency.

Quiet week for the Eurozone

The next seven days are unlikely to produce data-driven moves for the euro as the economic calendar is looking relatively light for the Eurozone. The only significant data expected are the final PMI readings for April.

The final PMI numbers for manufacturing (Monday) and services (Wednesday), as well as the composite reading (Wednesday) are expected to be confirmed at 51.5, 53.2 and 53.0 respectively according to consensus estimates. However, following a surprise sharp downward revision in March, another unexpected revision cannot be ruled out.

Also due for the Eurozone are March producer prices on Tuesday and retail sales on Wednesday.

US Fed and NFP back under the limelight

The Fed’s April meeting may be over, but it was overshadowed by the Bank of Japan’s decision to defy market expectations and hold its policy steady, which came hours after the FOMC announcement. Fed policymakers will get another chance next week to provide guidance to the markets during several planned speeches across the week. This could prove especially insightful, given that the FOMC statement provided little clues as to the likelihood of a June rate hike.

The list of speakers over the week includes William Dudley (Monday), John Williams (Tuesday), Loretta Mester (Tuesday), Dennis Lockhart (Wednesday), Neel Kashkari (Thursday) and James Bullard (Thursday). Bullard, Kaplan, Lockhart and Williams will also take part in a joint panel discussion on Friday on International Monetary Policy.

In terms of data, it is also an important week for the US, as the latest nonfarm payrolls will be more closely watched now that the Fed is back in data-dependent mode. Starting off though are the latest business surveys. Markit’s final manufacturing PMI (Monday) and final services PMI (Wednesday) will probably be overlooked in favor of the ISM surveys. The April ISM manufacturing PMI is forecast to decline slightly from 51.8 to 51.5 on Monday, while the non-manufacturing PMI due on Wednesday is expected to marginally improve from 54.5 to 54.6 in April.

The ADP employment report on Wednesday will be eyed as it is often an indication for the nonfarm payrolls numbers the following Friday. The ADP employment change is forecast at 200k for the April period. This is in line with the expected nonfarm payrolls change, which is also forecast at 200k and compares with 215k in March. The unemployment rate is expected to stay unchanged at 5%, while average hourly earnings are forecast to edge up from 2.3% year-on-year in March to 2.4% in April.

A stronger-than-expected reading could cause volatility for the dollar, which has fallen significantly this past week. The greenback is also likely to prove sensitive to the Fed speakers, given signs of diverging views between those supporting a cautious approach and those who are worried about the rate rise cycle falling behind the curve.

Will the RBA hold rates?

The Australian dollar had a rough ride this week when weaker-than-expected inflation numbers triggered a sell-off. Rising commodity prices were only a small support for the Aussie, which looks set to end the week around 1% down against the US dollar at a time when the greenback itself is in a bearish mode.

The Reserve Bank of Australia will hold its policy meeting on Tuesday and is widely expected to hold rates at 2%. However, speculation mounted this week that the RBA could resume its rate cutting policy in the coming months as inflationary pressures in Australia continue to recede. Even if the RBA keeps rates unchanged at its May meeting, the accompanying statement will be closely scrutinized for any change in tone about concerns over the Aussie’s year-to-date gains and unexpectedly weak inflation.

Also to watch for the Aussie next week are retail sales figures for March, due on Thursday.