ON DECK FOR THURSDAY, APRIL 8
KEY POINTS:
- Treasuries rally slightly further post-claims
- Weekly US jobless claims edge up again
- Fed’s Powell on tap…
- …but takeaways from FOMC minutes set low expectations
- Canadian jobs preview
- German factory orders miss, UK PMI beats
- LatAm inflation prints land on expectations
INTERNATIONAL
Material new information is in short supply to explain mixed but generally mild evidence of a risk-on market bias. Overnight developments were very thin ahead and today’s calendar only includes weekly US claims, a likely uneventful appearance by Fed Chair Powell and a sprinkling of LatAm releases. See below for a look ahead to tomorrow’s Canadian jobs report.
- Stocks are catching a mild bid in US and Canadian futures and London and Paris but are somewhat mixed across the rest of Europe.
- US Treasuries and Canadian government bonds are outperforming most other curves over longer maturities and rallied a bit further after US claims. Longer-term yields are down by 2–3bps in both countries.
- The USD is slightly depreciating against most major crosses.
German factory orders fell a little shy of expectations because of downward revisions. They were up by 1.2% m/m in February which was on consensus, but January was revised to +0.8% from 1.4%.
The UK construction PMI strongly beat expectations at 61.7 (55 consensus, 53.3 prior).
Mexican CPI landed on the screws at 4.7% y/y and up by about 0.9% from the prior month’s year-ago pace. Prices were up 0.8% m/m which was also on consensus. Minutes to Banxico’s March 25th meeting arrive at 10amET.
Chilean inflation also landed in line with expectations at 2.9% y/y (3.0% consensus) with core at 2.6% y/y.
CANADA
Canada’s calendar is empty today, but we’ll get a jobs report tomorrow that will probably offer a fleeting gain before renewed job losses in the subsequent report next month. My guesstimate submitted last Tuesday was for a 100k gain which turns out to be the median consensus call notwithstanding a range from about 50k to 175k across individual estimates. Much of that dispersion is captured within the random noise aspect of the call given the 95% confidence interval for monthly changes in employment is +/-58k.
We can, however, point to a few general references to labour market conditions in support of expectations for a decent gain tomorrow. Restrictions eased into the March reference week that includes the 15th of each month (chart 1). That was particularly so in Toronto that did not participate in the February nationwide job gain of 259k and is likely to play a leading role tomorrow by recapturing some of the lost jobs over prior months (chart 2). The impact of easing restrictions was seen in mobility readings (chart 3). We also learned yesterday that hiring intentions shot sharply higher as the employment subcomponent to the Ivey PMI hit the highest reading since November 2007 (chart 4).
But wherever tomorrow’s print lands, it’s all going to be very fleeting as the country goes back into varying degrees of lockdowns to counter rising COVID-19 cases. Still, Canada has had a total of 1.04 million COVID-19 cases to date versus about 31 million in the US. The US has had about 31 times as many COVID-19 cases as Canada with only 9 times the population so the gold medal for pandemic mismanagement still goes to the US by a landslide margin. A big pharma home bias is serendipitously bailing out the US through vaccines and sowing future moral hazard should another pandemic arise. Canada’s vaccine progress is frustrating and has multiple drivers dating back decades in time but it’s still likely that the country is 1–2 quarters behind the progress in the US.
UNITED STATES
Fed Chair Powell will be on an IMF panel with the heads of the IMF and WTO at about 12pmET. I wouldn’t expect a whole lot out of this. Yesterday’s meeting minutes generally indicated as much. The minutes made it clear that FOMC officials don’t wish to be hassled by pleas to update their views at every twist and turn when they said:
“They noted that a benefit of the outcome-based guidance was that it did not need to be recalibrated often in response to incoming data or the evolving outlook."
Translation? Buzz off. Leave us alone. We gave you our fresh guesses at the last meeting and now we’re back to watching developments on fiscal plans, data, vaccines and consumer behaviour just like the rest of you are and all of this will take time to assess. Ergo, don’t look to Powell to indicate any material narrative swings today.
Otherwise, the minutes to the March meeting were a) stale, and b) pretty uneventful. Stale because they speak to the discussion in mid-March after which the vaccine curve super accelerated and before President Biden announced his American Jobs Plan with infrastructure spending financed by corporate tax hikes as we await his next American Families Plan. The minutes repeated reference to being “some time” before the conditions for adjusting Treasury and MBS purchases are expected to be achieved; we heard the same reference in the prior minutes among other communications. Third, the minutes reinforced willingness to adjust short-term administered rates if required in the face of a pending onslaught of liquidity as the Treasury General Account gets redeployed. Here is the exact quote:
"Following the discussion, the Chair noted the potential for downward pressure on money market rates and suggested that, should undue downward pressure on overnight rates emerge, it might be appropriate to implement adjustments to administered rates at upcoming meetings or even between meetings to support effective policy implementation and ensure that the federal funds rate remains well within the target range."
We also heard that a few participants were in favour of removing the counterparty ON RRP limit entirely, whereas the March meeting raised it by US$50B to $80 billion. The sum takeaway is that while big shifts are well down the road, money market participants got additional clues to be monitoring opportunities in short-term relative rates.
US weekly initial jobless claims backed up a bit last week to 744k and the prior week was revised up a bit to 728k from 719k. That’s higher than consensus expected and marks two weeks of increases. Still, initial claims have been bouncing around a range of roughly 660k to 760k since about mid-February. I would treat that as mostly noise following the prior improvement. Continuing claims also exceeded expectations at 3.73 million (3.64 million consensus) with a mild downward revision to the prior week at 3.75 million from 3.79.
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