Key events in developed markets and EMEA next week | articles

Markets have pushed the pricing for the first rate cut from the Federal Reserve back to December. This is a remarkable swing given it was only three months ago that the market was fully discounting 175bp of rate cuts this year starting at the March FOMC meeting. Nonetheless, with inflation running far too hot, the economy growing robustly and adding jobs in significant numbers there is no prospect of the Fed easing monetary policy in the near future with the upcoming 1 May FOMC meeting being a complete non-event. At the time of writing, the market is pricing just a 2.6% chance of a rate cut next week. The accompanying press conference will also see Fed Chair Jerome Powell sound less dovish with him set to reiterate his comments from 16 April that “if higher inflation does persist we can maintain the current level of restriction for as long as needed.”

In terms of the data, the highlight will be Friday’s jobs report. Having added 829,000 jobs in the first three months of the year the pace of hiring is expected to slow in the second quarter. Business surveys point to a substantial slowing, with the ISM employment components having sub-50 readings indicating a contraction and the NFIB small hiring survey suggesting something around the 50,000 mark. However, local government hiring is firm and there is a wariness that official data continues to be stronger than private sector surveys. Hence we look for non-farm payrolls to slow from 303,000 in March to 210,000 in April and for the unemployment rate to remain at 3.8%. Nonetheless, we will get ADP employment numbers and other survey updates that will help firm up expectations through the week.

Other numbers to look out for include the ISM manufacturing and service sector purchasing managers’ indices. They are currently at levels historically consistent with GDP growth closer to 0.5% year-on-year rather than the 3% YoY reported by 1Q GDP. We aren’t expecting any meaningful improvement next week. Also, watch out for the 1Q employment cost index for signs that inflation pressures emanating from the jobs markets continue to cool.