Markets to Watch This Week: Hotly Anticipating Friday’s NFP

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Market Moves Over the Past Week

Friday’s US Services PMI surprised to the upside through February (55.1 vs 54.5 expected). There was a sizeable jump in the employment component, too (54.0 vs 50.0 expected), confirming resilient strength in the labour market. In Dominique’s eyes, the print confirms what other recent data prints have been showing: growth is rebounding. Next door, the February Canadian manufacturing PMItipped to 52.4 from 51.0.

Europe sees hawkish data outturns. Henry had been looking for a beat in Eurozone core inflation last week, but the upside surprise (+5.6% YoY, vs cons: +5.3%) was even greater. This supports Henry’s hawkish expectations for the European Central Bank (ECB).

The market is now pricing a 4% ECB terminal rate. He sees a strong possibility of delivery given the likelihood of 50bp hikes in March and May.

But there is potential resistance. The speed of re-pricing could see some pushback in the near term. This could come from a potentially weaker March inflation print, any tentative responses from ECB speakers regarding pricing with QT just beginning, or the possibility of paring 2025’s inflation forecast to 2%.

Henry continues to favour EUR 2s10s steepening.

On the Scandies, Norwegian retail sales were misleading. While they increased +1.3% MoM through January, this followed a 4.2% MoM fall in December. The trend remains negative (-0.5%). Negativity continued with unemployment remaining 0.1pp above Riksbank forecasts.

The picture is seemingly worse in Sweden. The past week saw GDP fall, retail sales continue their negative run, and PMIs remain comfortably below 50.

The new China 5% growth target disappointed market expectations. However, Bert is ignoring the new target for four reasons:

1. It is fair for China to be cautious in setting its target, given they missed it by 2pp last year.
2. The target has often been beaten in the past; they recorded +9% growth in 2019 versus a target of +6%.
3. The target for new employment (12 million) is rather high.
4. Li Keqiang’s speech, which the growth target was announced in, was his swan song as he is leaving the cabinet.

In short, there will be better moments to gauge the intentions of policy markets than the growth target.

What to Watch

Markets will be left in anticipation until Friday’s US NFP. Dominique expects a positive surprise relative to consensus of 215,000, which basically assumes that employment growth will return to the downward-sloping path prevailing before the revisions. This seems unlikely to her given other indicators are signalling strong demand growth.

Additionally, Dominique sees a marginal probability of a small improvement in participation as the rebound in the household savings rate suggests households have spent pandemic transfers and must return to work.

Outside of data, Chair Powell’s testimony will be closely followed given this is his last public speaking opportunity before the pre-meeting blackout (starting on the weekend). Thus, Dominique believes if he were to go for a 50bp hike at the 22 March meeting, he will likely drop hints during the Q&A.

Several important ECB speakers will talk this week, including President Christine Lagarde (neutral) and ECB Fabio Panetta (dove) on Wednesday. Henry sees room for Lagarde to continue plugging that the ECB will ‘stay the course’, but she may also see room to stress the data dependence and the need not to assume anything is taken for granted.

Meanwhile, Henry expects that Panetta will likely remain highly dovish, though his reaction to the CPI beat will be interesting. Continued core beats should be a concern for him.

GDP (Friday) will prove most important in the UK. Following December’s drop of 0.5% the market is looking for a modest bounce back (consensus: +0.1%). Given very strong recent services PMI outturns, there could be room for an upside surprise, helped by the occurrence of fewer strikes than in December.

Elsewhere, Ben is in line with the consensus on the Reserve Bank of Australia (RBA; Tuesday) and Bank of Canada (Wednesday) meetings: a 25bp hike and a pause, respectively. To him, the RBA’s last paragraph will prove most interesting. Here, he is expecting hawkish tone to be somewhat pared back.

Watch Andrew and Dominique discuss why Dominique disagrees with NFP forecasts, whether Chair Powell will drop hints to a 50bp rate hike at the GOP testimony, and if Humphrey Hawkins will move markets, as well as much, much more!

Ben Ford is a Researcher at Macro Hive. Ben studied BSc Financial Mathematics at Cardiff University and MSc Finance at Cass Business School, his dissertations were on the tails of GARCH volatility models, and foreign exchange investment strategies during crises, respectively.