Attention will be on US employment data
Market concerns about the banking crisis calmed a bit last week. The focus shifted to "central banks and interest rate hikes." Early last week, the 25 basis point probability for May approached the probability of success, with Bullard saying that "the Fed should continue to raise rates, and in this context, the maximum rate for him is in the range of 5.50-5.75." The "aggressive FED pricing" was reinforced when Conference Board consumer confidence data released Tuesday topped last month's readings. The 25 bp possibility in May surpassed the possibility of a pass. On Thursday, the 7000 increase in weekly claims for unemployment benefits compared to the previous week was interpreted as a cooling of the labor market. The fact that the final reading for the fourth quarter of 2022 was 2.6%, slightly below expectations (2.7%), did not radically change the perception that "the economy is strong". On Friday, the Personal Consumption Expenditure (PCE) price index, the most popular inflation indicator at FED, was released. February PCE fell to 5.00% on an annual basis (expected 5.1% vs. 5.4% the previous month); it rose 0.3% on a month-over-month basis (expected 0.5% vs. 0.6% the previous month). Core PCE also fell 4.6% y/y (expected 4.7% vs. 4.7% previous month), while the monthly increase was higher than expected at 0.3% (expected 0.4% vs. 0.6%). Incoming PCE data suggest that inflation in the U.S. continues to decline. Although softer pricing came to the fore according to the data FED, we cannot say that this pricing is very strong. There are two possible reasons for the very strong price action after the PCE data. The first is that personal income for February, released on Friday, was above expectations. The second reason is the non-farm employment (TDI) data that will be released next week. As the market waits for this data, it may be a bit more cautious about the decline in inflation. Although pricing is not very strong, on Sunday, when this article was written, according to the PCE data, it seems that the probability that FED will skip rates in May (51.6%) has exceeded 25 basis points (48.4%). Market; It continues to price in that the FED will cut rates to a range of 4.25%-4.50% by the end of the year, with cuts of 25 basis points in September and December.
Possible Interest Rates at the FED FOMC Meeting in May
Source: https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html
This week will see very important labor market data coming out of the US. The first is JOLTS, the data on job openings, which will be published on Tuesday and to which the FED attaches great importance. If there is no setback in this data, the aggressive FED pricing seems to be a candidate for strengthening. Also on Wednesday, the ADP private sector employment data will be important. However, the most important day will be Friday. That is when we will expect the TDI report data. In this report, the TDI data is expected to decrease to 240 thousand (last month it was 311 thousand); unemployment is expected to be the same as last month (3.6%). Again, average hourly earnings are expected to increase 0.3% (up from 0.2% last month) and annualized earnings are expected to increase 4.3% (up from 4.6% last month). Although average hourly earnings are expected to increase at a faster pace than the previous month, aggressive pricing from FED could be mitigated if TDI data generally turn out this way. In this case, in addition to buying in the indices, prices of 1220 TL above 2000 dollars and below grams can be opened on the gold side. Of course, it will be important in which direction the other data will come during the week. In this regard, the US PMI data that will come on the weekdays will also be followed in terms of price formation. I think it is possible to wait for good (bad) data and bad (good) market prices if the problems related to the banking crisis in the US do not come to the fore this week. Since the US markets will be closed on Friday, it is very likely that we will see the real impact of the TDI data early next week..
On the European side, we have been mainly concerned with inflation data this week. In Spain, Germany, and France, headline inflation rose in March. Although headline inflation fell sharply from 8.5% to 7.1% due to the decline in energy prices for the Eurozone in general, the ECB was not worried about inflation and interest rate hikes after core inflation hit a historic record high from 5.6% to 5.7%. It does not look like that will be very comfortable. There are already comments from members that the ECB may raise rates more than the market expects. The latest ECB Vice President De Guindos expressed his unease about high core inflation. In light of recent market data, he expects a 90% probability that the ECB will raise rates by 25 basis points at its May meeting, bringing the maximum rate to 3.52% later this year. On the European side, PMI data to be released on Wednesday this week will be followed.
Possible Interest Rates of the ECB for 2023
Source: Bloomberg Terminal
