Looking Ahead – Home on the Range

Millions of pandemic-weary Americans are already eagerly looking forward to their vacations in July and August, but there is one summer getaway on the calendar that market participants are eyeing warily – the Federal Reserve’s late August Economic Symposium in Jackson Hole, Wyoming. Last year, the virtual version of the event took away some of the fun of seeing global central bankers and economists cutting rather uncertain profiles in the great outdoors with creases still visible and their newly bought blue jeans – they hardly look at home on the range! Whether it happens in person or not, this year’s Symposium will be perhaps the most consequential Jackson Hole of Fed Chair Powell‘s tenure, as speculation is increasing that it could be the venue for the announcement of a tapering of the ongoing asset purchase program (aka quantitative easing or QE), which is currently at a rate of $120 billion per month.


In this week’s press conference following the FOMC decision, Chair Powell summarily dispensed with questions about the taper by saying it was still too early to talk about it, though Dallas Fed President Kaplan made headlines today by opining that it will soon be time to discuss the process. Whenever the eventual announcement is, Chair Powell has suggested that it will come well before the actual tapering process begins. All of this has served to deepen speculation around the potential for the June, July, or September meetings to feature taper talk, but with Jackson Hole on the calendar, it seems as though that could also be an auspicious intra-meeting platform for at least the start of the discussion.


Our view is that the Fed holds out for longer and, while the taper is the subject of increasing Fed chatter, the actual announcement is not until much closer to year-end, for a start in 2022. And this assumes that the markets stay placid – downside in equities, a renewed surge in longer-dated Treasury yields, swift upside in the dollar, or a combination thereof, we expect, would stay the Fed’s hand on the taper for perhaps even longer. This would reflect the Fed’s appreciation that financial market conditions can perform some of the tightening for them, even if they do not commit to a taper by the fall but leave open the possibility.


For now, though, markets are reflecting no such price action. Longer-dated Treasury yields are comfortably rangebound, as are the dollar, TIPS inflation breakevens, oil prices – these key macro bellwethers have been trending generally sideways for a month or more. However, we do not expect these to stay in these ranges for much past Memorial Day, as the US economic recovery heats up over the summer, reigniting the upside bias in the Treasury yield curve and the dollar. So rather than spending Jackson Hole communicating to markets that QE tapering is impending, we think it is perhaps more likely that the Fed messaging at the Symposium is instead designed to push back on market anticipation of the taper and, hence, earlier than projected Fed rate hikes. And this is due to the importance of QE as a policy signal which sets the clock ticking to the first rate hike, which is (finger in the wind) about a year after the taper would start.    


Looking ahead to next week, the highlight is Friday’s US nonfarm payroll (NFP) reading for April, which is expected to show a powerful addition of 950k new jobs after March’s similarly robust 916k. ADP private sector employment figures on Wednesday and Thursday’s latest initial jobless claims number will provide some foreshadowing to this highly-anticipated NFP print. The Reserve Bank of Australia has a decision on Tuesday while the Bank of England and Turkey’s central bank meet on Thursday, and readings of global service sector purchasing managers’ indexes (PMIs) are also due throughout the week. Notable earnings reports next week include Pfizer, GM, PayPal.



  • Nonfarm Payrolls & Other US Labor Data
  • Bank of England
  • Reserve Bank of Australia
  • Global Service Sector PMIs
  • Corporate Earnings




Global Economic Calendar: Get a job, sha-na-na-nah sha-na-na-na-nah



Retail sales in Germany increased 1.2% m/m in February, rebounding after 2 consecutive months of declines but below market forecasts of a 2% gain, as the country remained under the coronavirus lockdown with retail partially closed. Compared to February 2020, the month before the coronavirus pandemic in Germany, sales were 9% lower. Year-on-year, retail sales sank 9%, more than forecasts of a 6.3% fall. Sales of food, beverages and tobacco went down 1.6% and sales of nonfood items dropped 13.8%, with textiles, clothing, shoes and leather, goods of many kinds, department stores for instance and furnishings, household appliances and building supplies recording the largest annual falls.


US Construction spending decreased 0.8% m/m to a seasonally adjusted annual rate of $1.52 trillion in February, following a downwardly revised 1.2% rise in January and compared to market expectations of a 1% fall. Spending on private construction went down 0.5%, dragged down by spending on residential, power, health care and office. Also, public construction outlays declined 1.7%, mainly due to highway and street and education.


The ISM Manufacturing PMI jumped to 64.7 in March from 60.8 in February, well above market forecasts of 61.3. It is the highest reading since December of 1983. Faster increases were seen in production, new orders, the highest since January of 2004 and employment and inventories rebounded. Meanwhile, both new export orders and supplier deliveries slowed a bit and price pressures remained elevated. “The manufacturing economy continued its recovery in March. However, Survey Committee Members reported that their companies and suppliers continue to struggle to meet increasing rates of demand due to coronavirus impacts limiting availability of parts and materials”, Timothy Fiore, Chair of the ISM said.


Australia’s balance of trade showed a trade surplus narrowed to AUD 7.53 billion, from the previous month’s all-time high of AUD 9.62 billion and shy of market forecasts of AUD 9.7 billion. Exports were down 1%, while imports jumped 5% to a one-year high. Considering the first two months of the year, the trade surplus soared to AUD 17.15 billion from AUD 7.92 billion in the same period of 2020.


The Caixin China General Manufacturing PMI unexpectedly fell to 50.6 in March from 50.9 a month earlier and missing market expectations of 51.3. This was the lowest reading since April 2020, indicating the post-epidemic recovery faltered. Both output and new orders grew at softer rates while employment moved closer to stabilization. Meanwhile, the measure for stocks of purchased items remained in negative territory for the third straight month, and the measure for quantity of purchases plunged into a contraction. The gauge for suppliers’ delivery times increased, though it was still in negative territory. On the price front, inflationary pressures intensified, with both input costs and output charges rising at steeper rates. Meantime, export sales returned to growth as foreign demand improves amid an acceleration in global COVID-19 vaccinations. Finally, the level of positive sentiment was among the highest seen over the past seven years.



The Reserve Bank of Australia left its cash rate unchanged at a record low of 0.1% during its April meeting, as widely expected. Policymakers reaffirmed their commitment to maintaining highly supportive monetary conditions until at least 2024 when actual inflation is sustainably within the 2 to 3% target. The board also remains committed to the 3-year government bond yield target of 10 basis points. Later in the year, it will consider whether to retain the April 2024 bond as the target bond or to shift to the next maturity. It added that the second $100 billion government bond purchase program will start next week. Regarding CPI inflation, it is expected to rise temporarily because of the reversal of some COVID-19-related price reductions. On rising housing prices, the bank said it will monitor trends in borrowing carefully and it is important that lending standards are maintained.


Canada’s balance of trade showed the surplus narrowed to CAD 1.04 billion in February from a downwardly revised CAD 1.21 billion in the previous month. This was the first time since late 2016 that the trade balance was in a surplus position for two consecutive months. After a surge of 8.2% in January, total exports decreased by 2.7% to CAD 49.9 billion in February, a level 4.1% higher than that set in February 2020. The largest declines were observed in the metal and non-metallic mineral products, motor vehicles and parts, and aircraft and other transportation equipment and parts product sections. Total imports decreased by 2.4% in February to CAD 48.8 billion, their lowest level since August 2020. Imports of motor vehicles and parts had the largest decline, followed by energy products.


The US balance of trade showed the deficit widened for the second month to $71.1 billion in February from a revised $67.8 billion in the previous month, slightly above market expectations of a $70.5 billion gap. It is the biggest trade deficit on record as imports fell less than exports, in another sign the American economy recovers faster than its trading partners from the pandemic hit. The goods deficit widened by $2.8 billion to $88 billion, and the services surplus shrank by $500 million to $16.9 billion. Exports went down 2.6% to $187.3 billion, mainly due to other industrial machinery, civilian aircraft, semiconductors, foods and beverages, autos and travel services. Imports fell at a slower 0.7% to $258.3 billion, due to passenger cars and pharmaceutical preparations. The goods deficit widened with China and Canada but narrowed with Mexico.


US factory orders dropped by 0.8% m/m in February, the first decrease since April’s record contraction and compared with market expectations of a 0.5% drop. Demand for transport equipment declined by 1.8%, due to vehicles, defense aircraft, and ships and boats. Demand was also down for machinery, fabricated metal products, primary metals, and computers and electronic products.



The ADP Employment Report showed private businesses in the US hired 517K workers in March, compared to market forecasts of 550K. It is the highest increase in private payrolls in 6 months. The service-providing sector created 437K jobs led by leisure and hospitality (169K); trade, transportation & utilities (92K); professional and business (83K); education and health (68K); other services (22K); and financial activities (9K) while the information sector lost 7K jobs. The goods-producing sector rebounded and added 80K jobs, due to manufacturing (49K) and construction (32K) while natural resources and mining shed 1K jobs. Private payrolls in midsized companies were up by 188K, small firms by 174K and large companies by 155K.


The ISM Services PMI jumped to 63.7 in March from 55.3 in February, well above forecasts of 59. The reading pointed to the strongest growth in services activity ever. Faster increases were seen in business activity, new orders and employment while price pressures intensified. Also, both inventories and new export orders slowed. “Respondents’ comments indicate that the lifting of coronavirus pandemic-related restrictions has released pent-up demand for many of their respective companies’ services. Production-capacity constraints, material shortages, weather and challenges in logistics and human resources continue to cause supply chain disruption” says Anthony Nieves, Chair of the ISM.


The Caixin China General Services PMI picked up to a three-month high of 54.3 in March from 51.5 in the previous month, amid a further recovery from the pandemic. The latest reading was also slightly higher than the series average, as domestic demand strengthened, with new orders expanding the most since December 2020. Also, employment returned to growth, while backlogs increased slightly following falls in the prior four months. Meantime, export orders fell for the second straight month, though the contraction was limited. On the cost front, inflationary pressure increased, with input rising for the ninth straight month while output prices expanding for the eight months in a row. Looking ahead, sentiment strengthened to its highest in over a decade amid hopes of post-pandemic recovery.



Eurozone’s retail sales rose 3.0%m/m in February, rebounding from a 5.2% slump in January and compared with market expectations of 1.5% growth. Sales of non-food products jumped 6.8%, partially recovering from a 9.9% contraction in the previous month, with on-line trade advancing only slightly by 0.4%. In addition, sales of fuel climbed 3.7%, while food, drinks, tobacco trade declined 1.1%. On a yearly basis, retail sales shrank 2.9%, less than market consensus of a 5.4% plunge. Domestic trade could see a sharp decline during March in a disappointing end to the first quarter for retailers, as many countries in Europe, including Germany, France, Italy and Spain, imposed or extended restrictive measures to contain the spread of coronavirus.


The Bank of England (BoE) is expected to keep policy settings steady. At the BoE’s March monetary policy meeting, officials unanimously voted in favor of holding the current benchmark interest rate at the record low of 0.1% and left the pace of its asset purchase program unchanged. Following yesterday’s commentary from Fed Chair Powell, BoE officials similarly underlined improving economic conditions, citing better-than-expected output in January, new stimulus initiatives by the UK and US governments, and optimism surrounding Prime Minister Johnson’s rapid vaccination program. Meeting minutes also mentioned “upside risks” seven times compared to the two times in last month’s release. The signal to hold asset purchases (aka quantitative easing or QE) at the current pace aligns with the Fed’s current policy approach, and stands in contrast with the European Central Bank’s (ECB) positioning, as last week the ECB indicated it will seek to curb the undesirable surge in bond yields by increasing the pace of asset purchases. The narrative from US and UK central bankers in maintaining QE levels unchanged is rooted in the belief that rising yields are a reflection of improving growth and inflation outlook, rather than an undesirable tightening in financial conditions, at least to this point. To supplement this position, a report from the BoE’s regional agents showed signs of improving consumer demand and improving outlook for manufacturing by next year. Some economists project the BoE will upgrade economic forecasts significantly during the Monetary Policy Committee’s next meeting in May. UK government bonds continued their selloff, with the 10-year gilt yield rising 5 basis points to 0.88% while the pound edged lower versus the dollar to take its downside to 1.5% from its recent nearly three-year high versus the greenback


Initial and Continuing Jobless Claims will be in focus head of nonfarm payrolls the following day. Last week, the number of Americans filing for new claims for unemployment benefits continued to decrease to 553 thousand from an upwardly revised 566 thousand in the previous week and slightly above market expectations of 549 thousand. It is the third consecutive week with claims below 600 thousand and a fresh low since the pandemic hit helped by improvement in the economy due to increased vaccine rollout. Furthermore, 121 thousand people received Pandemic Unemployment Assistance, down from 133 thousand in the previous week. Additionally, continuing jobless claims increased to 3660 thousand the week ending April 17 from 3651 thousand in the previous week. Finally, in the week ending April 10, 16.559 million Americans received some sort of Federal assistance, down from 17,405 million in the previous week and continuing its downward trajectory after being above 20 million in the worst of the pandemic.


Nonfarm labor productivity fell by an annualized 4.2% in the last quarter of 2020, less than initial estimates of a 4.8% decline. Still, it remains the biggest decline in productivity since the second quarter of 1981. Output increased 5.5% and hours worked rose 10.1%. Year-on-year, nonfarm business sector labor productivity increased 2.4%, reflecting a 2.6% decline in output and a 4.9% drop in hours worked. It compares with initial estimates of a 2.5% rise.


China’s balance of trade showed a trade surplus narrowed to $13.8 billion in March, from $20.0 billion in the same month of the previous year and far below market expectations of $52.05 billion, amid an improving global demand and higher commodity prices. Exports soared 30.6% and imports jumped 38.1% to an all-time high, at the fastest pace since February 2017. The country’s trade surplus with the US declined to $21.37 billion in March from $23.01 billion in February. Considering the first three months of the year, the trade surplus widened sharply to $117.1 billion, from $12.8 billion in the same period of 2020, as exports and imports soared from last year’s record slumps.



The German balance of trade showed a narrowed surplus to €18.1 billion in February from €20.3 billion a year earlier. Exports declined 1.2% y/y to €107.8 billion while imports rose 0.9% to €89.7 billion. Sales to the EU countries edged down 0.3%, of which those to the Eurozone declined 0.9%. Imports from the EU rose 0.9%, mainly due to countries outside the Eurozone while those from the Eurozone fell 0.6%. Shipments to third countries were down 2.3%, namely to the US while those to China surged. Imports from third countries were up 1.1%, namely from China while those from the US sank 12.6%.


The Canadian employment report showed the economy created 303 thousand jobs in March, above market expectations of a 100 thousand rise, bringing employment to within 1.5% of its pre-COVID February 2020 level. Both full-time (+175,000; +1.2%) and part-time (+128,000; +3.9%) employment increased. Self-employment rose for the first time in three months, up 56,000 (+2.1%), but remained 5.4% (-156,000) below its pre-COVID February 2020 level. Employment in retail trade rose by 95,000 (+4.5%) in March, fully recouping the remainder of the losses sustained in January. The number of people working in information, culture and recreation also went up (+62,000; +9.4%) for the first time since September. There were 21,000 (+2.4%) more people working in accommodation and food services. Employment increased in most provinces, namely Newfoundland and Labrador, Prince Edward Island, Quebec, Ontario, Manitoba, Alberta and British Columbia.


The Ivey Purchasing Manager’s Index in Canada jumped to 72.9 in March from 60 in the previous month and above market estimates of 60.5. It was the highest reading since March of 2011 and the second-highest since the survey began in 2000, pointing to a strong improvement in the economic activity. Solid rises were seen in employment (62.7 vs 54 in February) and inventories (61.7 vs 57.8). Meanwhile, deliveries were slower than the previous month (39.6 vs 38.6) while prices eased (75.1 vs 80.2).


The US employment report showed the economy added 916K jobs in March, the most in 7 months, following an upwardly revised 468K in February. It compares with market expectations of 647K, amid easing business restrictions, falling coronavirus infection rates, a fast vaccine rollout and continued support from the government. The largest job gains occurred in leisure and hospitality, 280K, public and private education, 190K, and construction 110K. Employment also increased in professional and business services 66K, manufacturing 53K and transportation and warehousing 48K. Still, that leaves the economy about 8.4 million jobs short of the peak in February of 2020, as the job market still has a long way to go before fully recovering from the pandemic shock. Fed Chair Powell recently said there’s a good reason to expect job creation to pick up in the coming months although it will take some time to get back to maximum employment.


The unemployment rate fell to 6% from 6.2% in the previous month, the lowest rate in a year and in line with market expectations. The rate has been falling steadily in recent months after reaching an all-time high of 14.8% in April last year but many believe it has been understated by people misclassifying themselves as being “employed but absent from work”. The number of unemployed people fell by 262 thousand to 9.710 million while the number of employed rose by 609 thousand to 150.85 million. The labor force participation rate edged up to a 3-month high of 61.5 percent from 61.4 percent. Fed Chair Powell recently said the participation rate is seen expanding and holding the unemployment rate up which would be a highly desirable outcome.