MNI US OPEN - Fed Look Sensitive to Any Surprises in Payrolls

NEWS

MNI US PAYROLLS PREVIEW: Fed Sensitive to an Unexpected, Meaningful Weakening

Bloomberg consensus sees nonfarm payrolls growth of 241k in April after another strong 303k in March. Private payrolls are seen increasing 190k, implying government job creation at its softest since Nov but still almost more than two and a half times the average pace seen in 2019. Markets will be mindful of household survey volatility but with continued focus on immigration-driven supply side strength, the u/e rate should help guide on broader labor market balance. Few analysts look for an upside surprise for the u/e rate but we wouldn’t rule one out with risk of a dovish reaction. At 3.83% in March, it doesn’t take much to move closer to the FOMC’s 4.0% end-2024 forecast.

US (BBG): Biden Touts Infrastructure Funds in Bid to Flip North Carolina

President Joe Biden lambasted Republicans who opposed his signature infrastructure law that is funding lead-pipe removal in North Carolina, as he seeks to make a long-shot play for the battleground state. Biden’s third trip to North Carolina this year is bolstering his campaign’s push to compete in the traditionally red state that Republican Donald Trump narrowly won in 2020. Biden announced $3 billion to help identify and replace toxic lead pipes and deliver clean drinking water, casting the investment as a boon to public health and the state’s economy.

NORGES BANK (MNI): Norges Bank Holds, May Stay on Hold for Longer

Norges Bank left its policy rate unchanged at 4.5% at its May meeting and stated that it may keep the policy rate on hold for quite some time and longer than it previously envisaged. The decision to hold policy steady was very widely expected, but the change in guidance to signal a longer plateau, when previously Governor Ida Wolden Bache had stated the first cut was likely to come in September, was a hawkish surprise, in part because the central bank will only complete a full forecast round for next month's meeting. Norges Bank's policy statement said that there "may be a need to keep the interest rate up somewhat longer than we previously envisioned," which suggests a first cut late this year at earliest.

EU (MNI): NGEU Extension Debate to be Linked with EU Budget Dossiers

EU officials are already thinking through ways in which its Next Generation EU Covid recovery instrument can be kept alive after its 2026 termination date, despite objections from net contributors to the EU budget like Germany and like-minded ‘frugal’ member states, EU and Italian sources told MNI. With the Commission obliged to make a proposal for its next long-term budget by June 2025, what happens to NGEU 1.0 will quickly become a relevant, if politically difficult, issue. The need to provide significant additional funding for new strategic priorities like defence and the green and digital transitions is injecting urgency into the debate.

BOE (MNI): BOE Faces Deeper Rate Cuts on UK Savings Impact

The Bank of England faces making deeper interest rate cuts because it confronts a reversal in the boost to savings from positive net interest income flows that has hampered the tightening cycle started in late 2021, Simon Pittaway, senior economist at the Resolution Foundation and, formerly, the BOE, told MNI. The predominance of fixed-rate mortgages, contributing to relatively robust household finances, has resulted in positive net interest income flows to households which have weighed against the policy tightening, Pittaway points out.

UK (MNI): Another Major By-Election Swing Shows Scale of Challenge for PM

With results from local and mayoral elections across England and Wales set to filter through over the coming 24 hours, the most noteworthy result overnight came from a parliamentary by-election in the Blackpool South constituency in northern England. Labour won the seat from the Conservatives with a swing of 26%, the third-largest Conservative-to-Labour Swing in a by-election since 1945. It is not only the scale of the swing that indicates how low the Conservative vote has fallen, but the recent consistency in significant swings. Of the 10 largest Conservative-to-Labour by-election swings since 1945, five have taken place within the past 10 months.

RBA (MNI): Board to Hold, But Mull Shift from Neutral

The Reserve Bank of Australia board looks set to hold the cash rate at 4.35% when it meets over May 6-7, with policymakers considering a shift to a more hawkish tone as they evaluate still elevated inflation and a resilient labour market alongside several softer metrics across the economy. The market will also eye publication of the Reserve’s updated forecasts within May’s Statement of Monetary Policy, which could push out the RBA’s timeline for returning inflation back to the 2-3% target and also increase its end of year cash rate assumption. The RBA had predicted inflation back to target by late 2025, and assumed a 3.9% cash rate by December.

TURKEY/ISRAEL (MNI): Turkey Halts Trade w/Israel Until Permanent Ceasefire & Aid Secured

Turkish Trade Minister Ömer Bolat has stated that the trade halt with Israel announced on 2 May will continue until a permanent ceasefire is in place and the flow of humanitarian aid to Gaza is secured. These comments appear to go further than the ministry's comments last night, which only referred to the halt remaining until aid flows are secured. In the wake of the announcement, Israeli Foreign Minister Israel Katz posted on X. Regarding President Recep Tayyip Erdogan he said, "This is how a dictator behaves, disregarding the interests of the Turkish people and businessmen, and ignoring international trade agreements"

TURKEY (BBG): Turkish Inflation Nears 70% But Central Bank Hopes Peak Near

Turkey’s inflation rate, already one of the world’s highest, accelerated for the sixth straight month, as government policies such as wage hikes counter aggressive interest-rate increases. Consumer prices grew 69.8% from a year earlier, the fastest since late 2022 and up from 68.5% in March. The median estimate in a Bloomberg survey of economists was just over 70%.Monthly price growth, the central bank’s preferred gauge, was steady at 3.18%. Turkish monetary authorities have said that annual inflation probably won’t peak until this month, before slowing to 36% by the end of the year.

CORPORATE (BBG): Apple Rallies on Upbeat Forecast, Record-Setting Stock Buyback

Apple Inc. shares jumped in late trading after the company posted stronger-than-expected sales last quarter and predicted a return to growth in the current period, sparking optimism that a slowdown is easing. Though revenue fell 4.3% to $90.8 billion in the March quarter, that was better than the $90.3 billion predicted by analysts. Profit also topped Wall Street projections in the period, and Apple announced the biggest stock buyback in US history. The results came as a relief to investors, who have been waiting for the iPhone maker to pull out of a long slump. Apple has posted sales declines in five of the past six quarters, hurt by a sluggish smartphone market and headwinds in China.

DATA

EUROZONE DATA (MNI): Unemployment Steady; Projected to Rise Gradually

• EUROZONE MAR UNEMPLOYMENT RATE 6.5%

The Eurozone unemployment remained unchanged at its all-time low of 6.5% in March, as expected. The rate was the lowest in Germany and Malta, both at 3.2% (both 3.2% prior) and the highest in Spain at 11.7% (vs 11.8% prior). This also brings the Q1 average print in at 6.5%, in line with the median estimate of MNI's collation of large sell-side analysts. Going forward, the rate is projected to tick up to 6.7% during Q2, where it is projected to remain until mid-2025. The underlying forecasts were not majorly revised during the last three months.

FRANCE DATA (MNI): France Industrial Production Continues to Stagnate

• FRANCE MAR INDUSTRIAL PRODUCTION -0.3% M/M, +0.7% Y/Y
• FRANCE MAR MANUFACTURING OUTPUT -0.5% M/M, +1% Y/Y

France Industrial Production came in below expectations at +0.7% Y/Y in March (+1.4% Y/Y consensus, -0.6% Y/Y revised prior from -0.8% Y/Y), although taking it back to similar levels to January 2024. On a monthly basis, it also underwhelmed at -0.3% M/M (vs +0.3% M/M consensus, +0.2% M/M prior). The downturn was driven by manufacturing production (which accounts for over 80% weighting of industrial production) which fell 0.5% M/M (vs +0.2% M/M consensus; albeit from only four analysts, +1.0% M/M revised prior).

UK DATA (MNI): Services PMI Points to Less Pass Through from NLW Increase to Inflation

• UK APR FINAL SERVICES PMI 55.0 (FLASH 54.9); MAR 53.1

Some interesting commentary on the NLW and its impact on costs / prices in the press release. The early indications on this seem to be not as concerning to the MPC as could have been feared, as it looks as though the passthrough from higher wages hasn't had a huge impact: "Higher wages, partly driven by a considerable rise in the National Living Wage in April, resulted in the sharpest overall increase in input costs since August 2023. In contrast, prices charged by service sector firms rose at the slowest pace for three years."

AUSTRALIA DATA (MNI): Aussie Home Loans Rise 3.1% in March

Australian home loan values rose 3.1% m/m in March, higher than the 1% market expectation, and 17.9% y/y to AUD27.6 billion, data from the Australian Bureau of Statistics showed Friday. “The rise in the value of new home loans over the past year reflected increases in the average loan size, in line with rising house prices over the same period,” said Mish Tan, head of finance statistics, at the ABS. “Meanwhile, in original terms, the number of loans reaching the final commitment stage is broadly similar to a year ago.”

RATINGS: Potential Italy Update from Fitch in Focus

Potential rating reviews of note scheduled for after hours on Friday include:

• Fitch on Italy (current rating: BBB; Outlook Stable)
• Moody’s on the European Financial Stability Facility (EFSF) (current rating: Aaa; Outlook Stable) & the European Stability Mechanism (ESM) (current rating: Aaa; Outlook Stable)
• S&P on Turkey (current rating: B; Outlook Positive)
• Scope Ratings on Croatia (current rating: BBB+; Outlook Stable) & France (current rating: AA; Outlook Negative)

FOREX: USD/JPY Remains Under Pressure, Holding Entirety of Post-Intervention Losses

• The greenback is modestly lower early Friday as the pullback off the cycle high at 106.517 continues, making for a ~1.2% slip off the pre-Fed highs. JPY is modestly firmer, helping keep USD/JPY below the Y153.50 level, thereby holding the bulk of the post-intervention losses.
• NOK is the session's outperformer, rallying against all others following the Norges Bank rate decision. While rates were kept unchanged, the bank made a hawkish tweak to the policy statement, adding that “The data so far could suggest that a tight monetary policy stance may be needed for somewhat longer than previously envisaged”.
• Overall, Norges Bank continues to lean hawkish, and today’s decision suggests that the current consensus for a September rate cut may need to be pushed back somewhat.
• Focus Friday turns to the payrolls report for April, at which markets expect 240k jobs to be added, a step lower from March's 303k. Average hourly earnings will again be a focus, seen rising 0.3% on the month, and 4.0% on the year. ISM services data follows 90 minutes later. Fed's Goolsbee will be the first FOMC member to speak following the decision on Wednesday, appearing on Bloomberg TV.

EGBS: Firmer But Off Highs Ahead of US Payrolls Report

Bunds are +25 ticks at 130.64, trading in the middle of today’s tight 29 tick range.

• Most of yesterday afternoon’s gains have held, with little in the way of market moving regional newsflow or data this morning.
• Eurozone March unemployment was in line with consensus estimates at 6.5%. Current sell-side consensus expects an uptick to 6.7% through Q2.
• After hours Thursday, ECB Chief Economist Lane delivered a lecture on the “The analytics of the monetary policy tightening cycle”. In line with the ECB’s April meeting guidance, he did not pre-commit to a rate decision at any of the upcoming meetings.
• Elsewhere, ECB GC dove Stournaras suggested that three rate cuts in 2024 was now “the more likely scenario” following recent growth and inflation outcomes. He previously pointed to the need for four rate cuts before year end.
• Short-end German and French cash yields are a touch lower this morning, helping curves to lightly steepen.
• 10-year periphery spreads to Bunds are slightly tighter, with European equities 0.5% higher today. Fitch are scheduled to provide a sovereign rating update on Italy after hours (current rating: BBB; Outlook Stable) – see our earlier comment for more.
• Cross-market focus remains on the US labour market data at 1330BST/1430CET.

GILTS: Futures Pierce Resistance Before Fading, Little Changed Ahead of NFPs

Gilts have firmed a little in early Friday trade, with the rally in wider core global FI markets allowing initial resistance (96.57) to be pierced.

• Still, the contract operates in a relatively contained range (96.43-66) after pulling back from best levels, last +16 at 96.51, with the immediate focus falling on the U.S. NFP release.
• The bearish technical backdrop remains in play for gilt futures, but bulls are forcing the contract closer to initial meaningful resistance at the 20-day EMA (96.85). A break there would start to turn the technical tide a little more in their favour.
• Gilt yields are little changed to 1bp lower across the curve, after 2s and 5s faded from fresh ’24 highs set in the run up to the FOMC. A reminder that 10+-Year gilts found support ahead of their own multi-year yield highs in the lead up to Wednesday’s FOMC.
• SONIA futures are flat to 2bp higher on the day, with ~45bp of cuts showing through year end, little changed vs. pre-gilt open levels.
• Slightly firmer-than-flash final UK PMI data did little for gilts.
• Local headline flow continues to be dominated by the latest round of woes for the ruling Conservative Party.

EQUITIES: E-Mini S&P Shy of Resistance at 5120.92, the 20-Day EMA

Eurostoxx 50 futures are trading above 4762.00, the Apr 19 low. On the upside, the contract recently traded through the 20-day EMA and resistance at 4990.00, the Apr 15 high. This highlights a potentially stronger reversal. An extension higher would expose the bull trigger at 5079.00, the Apr 2 high. Key support lies at 4762.00, a break would be bearish. Initial support to watch is 4877.90, the 50-day EMA. The short-term trend condition in S&P E-Minis remains bearish and recent gains appear to be a correction. The contract has recently traded through the 50-day EMA, signalling scope for a continuation lower. A resumption of the bear leg would open 4907.57, a Fibonacci retracement. Firm resistance at 5120.92, the 20-day EMA, has been pierced. A clear breach would instead signal a reversal and expose key resistance at 5333.50, Apr 1 high.

• Across Europe, Germany's DAX trades higher by 59.41 pts or +0.33% at 17951.26, FTSE 100 higher by 24.91 pts or +0.3% at 8199.74, CAC 40 up 37.6 pts or +0.48% at 7950.24 and Euro Stoxx 50 up 22.26 pts or +0.46% at 4911.41.
• Dow Jones mini up 256 pts or +0.67% at 38631, S&P 500 mini up 15.75 pts or +0.31% at 5107, NASDAQ mini up 108.5 pts or +0.61% at 17756.75.

COMMODITIES: Gold Trading Close to This Week's Lows, Remains in a Short-Term Bear Cycle

WTI futures traded lower this week. Price has breached key support at the 50-day EMA, at $81.05. The clear breach of this average strengthens a short-term bearish theme and highlights scope for a deeper correction. This has opened $76.07, the Mar 11 low. Key resistance and the bull trigger has been defined at $86.97, the Apr 12 high. Initial firm resistance is at $84.46, the Apr 26 high. Gold traded lower Tuesday and breached initial support at $2291.6, the Apr 23 low. The precious metal has also traded through the 20-day EMA and this highlights a corrective cycle. A continuation lower would signal scope for an extension towards $2245.1, the 50-day EMA. Note that a short-term bear cycle is allowing significant overbought condition to unwind. Key resistance and the bull trigger is at $2431.5, the recent Apr 12 high.

• WTI Crude up $0.1 or +0.13% at $79.05
• Natural Gas up $0 or +0.1% at $2.037
• Gold spot down $3.93 or -0.17% at $2299.34
• Copper up $3 or +0.67% at $451.2
• Silver down $0.16 or -0.59% at $26.5225
• Platinum up $10.8 or +1.13% at $965.97