The Global Markets Weekly – 4/10/17

Posted April 10, 2017 by rvillareal

Looking for Direction in Mixed U.S. Data, and Policy

As we noted last week, still-strong sentiment data and the prospect for a stronger upturn in Q1 and Q2 corporate earnings results dangle the prospect of better times ahead as 2017 rolls on, blunting the importance of rear-view economic data. A good thing too, as indicators last week included a clear headline miss on nonfarm payroll jobs (just 98,000), and reasons to ratchet Q1 GDP expectations below 1% annualized, as vehicle sales missed sharply. Divergence between hard economic data around the consumer and ebullient sentiment remains unsettling, but DE continues to argue it should be looked-through given positive developments in less-advertised components of the jobs report, and their read on labor market momentum.

Even within the jobs report, there was divergence between the headline weather-impacted 98,000 gain in nonfarm payrolls and a massive 472,000 rise in Household Survey employment, which asks people, not employers, about their condition. That massive rise came after 447,000 in February, strong gains that hint at greater underlying firmness in the accompanying drop in the jobless rate to 4.5%. Other strong elements include a drop in the broader U-6 measure to 8.9%, a fresh post-recession low, and stable wage inflation at 2.7% y/y. The average Q1 jobs gain still stands at a not-too-shabby 178,000. Given underlying demographic trends, a trend pace above 100,000 is still more than sufficient to take up labor market slack.

This week may give more color on the direction on Fed policy too, including the balance sheet normalization issues outlined in the most recent Minutes. “Most” saw a change to balance sheet policy later in 2017, which we can be sure Fed Chair Yellen will be asked about at an appearance on Monday. Will the Fed Chair and the current FOMC seek to tie a bow on normalization of the $4.5 trillion balance sheet, then hand policy off to the new set of Fed appointees just before they come on in 2018?

• S.: A lighter week that does include some important indicators, including what should be both soft consumer prices and retail sales (Fri) data for March. The preliminary April U of M sentiment index (Thu) may remind investors of the disconnect between surging sentiment and weak spending—any weakness will be noted in the former. Small business confidence comes earlier in the week. Yellen appears Monday at the University of Michigan after the market close.
• Eurozone: A lighter week with just the region’s industrial production figure for February due (Tue).
• Japan: Machinery orders for March and February industrial production are the main indicators on the docket.
• Other central banks: Falling inflation leaves scope for steep cut in the Selic rate this week in Brazil (Wed), 100bps or more from the current 12.25% level. At 4.6% y/y in March, inflation is the lowest since 2010, aided by a solid turn higher in the currency.

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