We have seen markets normalise in Asia hours following wide-ranging USD weakness on Monday after a miss in ISM manufacturing and while London, Japan and China were out on holidays. There do not appear to have been any major headlines driving the reversal in Asia though.
On an idiosyncratic basis, data was also not a mover, with the AUD RBA coming and going with minimal impact for example. Data in the day ahead should also not provide many distractions, with USD trade data and snippets of central bank speak in USD, EUR and SEK the only points of note in G10. In EM, HKD retail sales and a RUB CBR monetary policy report are the only main releases due.
USD: ISM Manufacturing (Citi: 64.6, median: 65.0, prior: 64.7) missed at 60.7 with underlying components ISM price paid increasing to 89.6, ISM new orders lower to 64.3 and ISM employment declining to 55.1. Citi Economics dissects the details further here. Though this set of data printed below expectations, with vaccine distributions picking up and herd immunity set to be achieved into this summer - we believe there is scope for optimism in future releases.
AUD: The RBA has not surprised the market, leaving its policy levers unchanged and broadly reiterating its existing policy stance. Forecasts were, however, revised up with RBA seeing 4.75% GDP growth for 2021 and 3.5% for 2022 vs 3.5% in forecast in both years at the February meeting.
As we outlined in RBA Preview: AUD to come back from the CPI shock and Monday Macro FiX: don't sell in May, still bearish USD, EUR up, Scottish elections, we remain bullish on AUD, and NZD too for the week ahead and expect AUDNZD to stage a rebound as bullish industrial metals continues to support Australia’s commodities terms of trade.
To an abbreviated week ahead now and the biggest scheduled event will be Friday’s US jobs report for April, where our economists are expecting nonfarm payrolls to have grown by another +1.275m, which would follow the strong +916k reading in March.
Fed Chair Powell has said that they “want to see a string of months” like the March report in order to reach the Fed’s goals, so all eyes will be on whether this report fits that definition. On the unemployment rate, our economists are expecting another decline to a post-pandemic low of 5.7%.
Here in the UK, the main event this week will be on Thursday when an array of local and regional elections will be taking place. This year there are an unusually large amount because last year’s set were delayed to 2021 because of the pandemic, meaning this is likely to be the biggest mid-term electoral test the parties face this side of the next general election.
One of the main highlights will likely be the Scottish Parliament elections, where a majority for pro-independence parties would lead to fresh calls for another referendum on independence from the rest of the United Kingdom.
Staying on the UK, the Bank of England will be making their latest monetary policy decision on Thursday as well, though our economists write in their preview that they don’t expect any change to their policy settings. In terms of when they might begin to taper their QE operations, they think it’s a close call between May and June, but ultimately the BoE will wait until June.
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