Big data dump could surprise the market

Next week will be full of data that will likely show that the labor market remains healthy and that inflationary pressures persist. If this is the case, this means that the prospects for 2024 interest rate cuts will continue They dissipated, sending Treasury bond prices higher and strengthening the dollar. Under this scenario, as we move forward, we should see financial conditions tightening, credit spreads widening, and implied volatility rising, impacting stocks. Data will start flowing on Monday morning, with the ISM Manufacturing report, followed by JOLTS on Tuesday morning, ADP and ISM Services on Wednesday, and the official US jobs report on Friday.

ISM Manufacturing

The ISM Manufacturing Index is expected to rise to 49.7 from 49.2 in May, bringing it closer to a reading of 50, which determines whether the sector is expanding or not. Contracting. Meanwhile, the Critical Prices Paid Index is expected to fall to 60 from 60.9. The Prices Paid Index will be one of the first looks at inflation for May, and given the rise in the prices of many metals in May, it would not be surprising to see this figure come in hotter than expected.

Jobs chances

JOLTS data is expected to show a slight decline in open jobs to 8.37 million in April from 8.49 million in March. This number is difficult to predict and could be subject to significant revisions. Data from job postings already shows that the current trend continues to decline steadily, and the declines appear to have accelerated in May, which is something to watch for next month.

Abu Dhabi’s police

Meanwhile, the ADP is expected to show that 175,000 jobs were created in May, down from 192,000. If there’s one thing that’s clear about this data set, it’s that it has almost no discernible relationship to the actual government jobs report that comes out later. Of the week. They do not appear to be trending in the same direction, with periods when ADP employment was rising month over month while official government data was slowing from month to month.

BLS Jobs Report

The jobs report is expected to show that the United States added 190,000 jobs in May, up from 175,000 in April. Meanwhile, the unemployment rate is expected to remain unchanged at 3.9%, while average hourly earnings are expected to rise by 3.9% year-on-year in line with April and by 0.3%, up from 0.2% month-on-month.

Analysts tend to underestimate the number of jobs created each month. Last month was the first time analysts overestimated the number of jobs created in several months.

It is possible that with the Easter holiday being recognized in March rather than April, it was because April was a glitch. When combining the numbers of jobs created in March and April, the total came to 490,000, essentially the same range as the last few readings.

If hiring slows, that will likely show in May data, analysts expect. But if the labor market does not slow down, and the slow pace in April is due to the effects of early Easter, perhaps we should see the number of jobs created decline and approach or above the average of 230,000 jobs since March. 2023.

very low?

On the surface at least, analyst estimates appear to be sticking to previous trends. The bigger question is whether these expectations are too low. There’s not much to say that the unemployment rate is set to rise meaningfully, with initial and continuing claims remaining relatively unchanged for some time.

Given the rise in commodity and shipping prices over the past two months, estimates may be an understatement of inflationary pressures once again building on the industrial side of the equation. The S&P global manufacturing PMI, which gave preliminary readings for May, has already moved into expansion and is back above 50.

The S&P Global Purchasing Managers’ Index noted that manufacturers:

Manufacturers reported a particularly sharp increase, suffering their biggest rise in costs in a year and a half amid reports of rising supplier prices for a wide range of inputs, including metals, chemicals, plastics and wood-based products, as well as rising supplier prices. High energy and labor costs.

If price pressures build and the labor market rebounds in May, it is entirely possible that interest rates on the yield curve will once again rise. Differences between the Fed and other central banks will widen, further strengthening the dollar because interest rate cuts will be pushed further in time.

Additionally, there is another factor coming Thursday. The European Central Bank is expected to cut the overnight interest rate by 25 basis points. The market places the odds of the European Central Bank reducing interest rates at 95%. The market expects the next rate to come in October or December. If markets pick up on any signals from the European Central Bank that the next rate cut could come sooner, it could increase this divergence further.

At least until proven otherwise, the labor market and inflation remain intact, and there is very little evidence to support that this is not the case at the moment. May is likely to show that not much has changed.