Research Team at BNP Paribas, notes that the US data started the week on a soft note with the February personal and income and spending report coming in weaker than expected overall as most of the strong January rise in spending was revised away and core PCE deflator remained at 1.7% y/y.
Key Quotes
“The main data release of the week will be the March non-farm payrolls report on Friday where we expect the Easter effect to have a negative impact on the headline figure. We see the pace of hiring slowing to 180k from 242k in February, a flat unemployment rate at 4.9% and a trend-consistent 0.2% m/m gain in average hourly earnings.
Both the manufacturing and services ISM reports will be released after the jobs data this month, so the only advance hint on the numbers will come from the ADP survey on Wednesday. Given the recent softness in the business and personal spending data our US economists are now tracking meagre GDP growth of 0.8% q/q in Q1, supporting their view that the Fed will be in no position to hike rates.
Fed Chair Yellen speaks in New York on Tuesday and her comments could be important in setting the tone for market expectations for the April and June FOMC meetings. Fed funds futures now imply a 38% probability of a 25bp June hike but either a more dovish tone from Yellen or renewed equity market jitters this week could reverse some of the recent build up in Fed tightening expectations.
We remain sceptical of the USD’s recent gains, particularly against G10 current account surplus currencies and continue to expect EURUSD to climb to 1.16 by Q2.”
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