Welcome to Payrolls Friday which comes ahead of a busy weekend for voters in France and Greece and after the important services PMI data out in Europe this morning. For the big US number, consensus is at +160k and +165k for headline and private payrolls. DB’s Joe LaVorgna is at +175k for both and believes that the soft March payroll print and recent backup in jobless claims were more a reflection
of the seasonal noise around Easter. He’s hoping that yesterday’s bigger-thanexpected drop in jobless claims (365k v 379k) supports this argument. DB also expects the unemployment rate to decline by 0.1% to 8.1% (consensus 8.2%).
In Europe the services PMI data from Germany, Italy, France and Spain will be pretty important, especially after the weakness in manufacturing PMIs earlier in the week. Beyond today’s events, markets are also preparing themselves for a major weekend in European politics. The Greeks will go to poll this Sunday for the first time since the start of the Greek crisis. Polls will close at 7pm local time and
exit polls are expected at around then. Real-time results will start streaming out about an hour later and the first reliable result estimate should be available around 10pm local time (midnight UK). Based on recent polls, a close election and a fragmented government is quite possible and we may not get the final result until the early hours of Monday. Looking at possible outcomes, DB’s George Saravelos
noted that the latest polls on 20th April pointed to a picture that has remained remarkably consistent throughout the last two months: a large number of undecideds (~20%), record-low support for the two traditional governmental parties (New Democracy and PASOK) and rising extremes on both the left and right. A stable coalition government is a precondition to a workable relationship with its international creditors and also a pre-requisite in keeping Greece on track with its current loan programme. France also goes to its second round election this Sunday and Hollande is still the favourite. It also looks like Centrist leader Francois Bayrou has announced his support for Hollande. Bayrou ranked fifth in the first round two weeks ago with a 9.1% vote. A busy weekend awaits!
Ahead of these important events, yesterday was a mixed day for data and the disappointing non-manufacturing ISM report overshadowed the better-thanexpected initial jobless claims. The non-manufacturing ISM index came below market consensus (53.5 v 55.3) in April with the employment sub-component also down (54.2 v 56.7) from the previous month. The S&P 500 (-0.77%) posted its second consecutive fall led by losses in 8 of the 10 major sectors. Energy (-1.48%), Materials (-1.10%), and IT (-1.04%) were the main laggards. The day
certainly wasn’t helped by another weak performance in energy and commodity prices. Brent (-1.79%), WTI (-2.55%), Copper (-1.35%), Silver (-2.07%) were all down considerably yesterday.
Despite the weakness in US markets the European session was actually off to a fairly constructive start on the back of a relatively successful Spanish bond auction. Indeed Spain managed to sell EU2.52bn 3-year and 5-year bonds (high end of maximum target) albeit at considerably higher yields than seen in the last few months. However the positive glow was eroded to some degree by an ECB
that wasn’t as dovish as hoped, especially considering the weak PMI data the previous day.
The ECB noted that it did not discuss specific rate moves yesterday and considers that the monetary stance remains accommodative, “including in view of the current uncertainty”. As DB’s Gilles Moec pointed out, what this all means is that unless there is a complete
meltdown in data cutting rates is not on the table at this stage. We also can’t help thinking that the ECB is disappointed that its two large LTROs have perhaps been used as an excuse to delay difficult decisions in Europe. Maybe they are going to hold back any further
intervention until they remain convinced that Governments have re-accelerated their efforts. These intervention bottlenecks have been the soundtrack to this European crisis and there’s every chance that the music continues to play.
Finally to markets overnight. The Asian session is mixed with the Shanghai Composite (+0.1%) flatish but the Hang Seng (-0.7%) and the KOSPI (-0.4%) are both lower. China’s HSBC Services PMI rose to 54.1 in April from 53.3 in the month before. Australia’s RBA overnight cut its growth forecast by half a percentage point to 3% for 2012 on the back of weak labour and housing markets. Elsewhere President Cristina Fernandez de Kirchner won Congressional support (207 v 32) to take 51% control of YPF SA.
Jim Reid
Strategist
Colin Tan, CFA
Research Analyst
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