| ON DECK FOR THURSDAY, MAY 16 |
KEY POINTS:
- Market reaction to US CPI stabilizes
- Was the bump in US jobless claims temporary?
- FOMC officials are unlikely to celebrate US CPI
- Australian job growth rebounds, markets not impressed
- The BoJ should tread carefully as Japan's economy contracts
- Minor US releases on tap
Reaction to yesterday's US CPI figures (recap here) has stabilized with US Treasuries holding firm with a slight cheapening bias. Asia-Pacific bonds rallied in lagging reaction. Australia's curve outperformed on US CPI spillover effects and a rise in the unemployment rate plus soft details behind a solid job gain. Japan's economy is very weak.
There will be two key issues to monitor into the North American market session.
US Jobless Claims—A Temporary Bump?
Was the upward bump in US initial jobless claims (8:30amET) just distorted by spring break timing in parts of the country like New York where public school employees are allowed to file for benefits during the break? That's one theory. Or did the modest jump signal the beginning of a mildly deteriorating trend for the US labour market? We’re approaching the nonfarm reference period (pay period including the 12th day of each month) and the household survey’s reference week that includes the 12th, so the answer could matter to the next round of jobs figures for May.
FOMC Officials Probably Won't Celebrate CPI
How will FOMC officials react to CPI? We’ll hear from several today including Vice Chair Barr (10amET), Richmond President Barkin (10amET), Philadelphia President Harker (10:30amET), Cleveland President Mester (12pmET) and Atlanta’s Bostic (3:50pmET).
The US also updates housing starts (8:30amET) and industrial production (9:15amET).
There were a couple of notable overnight releases.
Markets Not Impressed By Australia's Job Beat
Australia created 38,500 jobs last month which was stronger than consensus expectations for 24k. Details were soft with all of that gain in part-time jobs (+44.6k) as full-time jobs fell by about 6k. The trend has been very volatile so far this year with +11k more jobs in January, +118k in February, and -6k in March. The unemployment rate crossed 4% to 4.1% from an upwardly revised 3.9% the prior month. Chart 2.
The BoJ Should Tread Carefully
Japan’s economy is very weak. Q1 GDP contracted by more than expected (-2% q/q SAAR, -1.2% consensus) and the prior quarter was revised down to no growth from 0.4% following a contraction of -3.6% in Q3 that was revised down from -3.2% (chart3). The Q1 details were soft as consumption (-0.7% q/q SA non annualized, -0.2% consensus) and business spending (-0.8% q/q SA nonannualized, -0.5% consensus) were weaker than expected and both were revised a bit lower.
Further tightening of monetary policy may expose the BoJ to another episode of policy error imo. The economy is very soft. Core inflation continues to be on a declining trend. The effects of prior gains in oil prices and yen weakness on core inflation are waning. Furthermore, there is no evidence that last year’s Shunto wage gains for <20% of workers are driving broader wage gains while it’s too early to tell for this year’s Shunto gains.
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