Norges Bank and Nonfarm to round off a busy week

In focus today

Today we get the US April Jobs Report which will round off the interesting week it has been in markets. We expect non-farm payrolls growth to cool to +200k, as immigration-driven uptick in labour supply continues to boost employment in lower-paying services sectors, but April PMIs suggested that elsewhere demand for labour is weakening. Average hourly earnings growth likely eased to +0.2% m/m SA. In the afternoon, ISM April Services index is also due for release. 

At 10.00 CET Norges Bank (NB) announces its policy rate. We expect NB to keep the policy rate unchanged at 4.5% which is in line with both consensus and market pricing. Hence, market focus will be on any commentary on developments and the outlook for potential rate cuts this year. A lot of factors have pointed to the upside since March, but on the other hand realised inflation figures continue to come in below expectations, confirming that the disinflationary trend persists. Hence, we do not expect NB to send any new policy signals at this stage and reiterate that "... the policy rate will likely be kept at that level for some time ahead.' We expect no direct reference to the September meeting, but that was not the case at the March-meeting either.

In the euro area focus will be on unemployment rate for March. We expect that the unemployment rate remained unchanged as suggested by the PMI employment index.

We wish you a happy Friday and good weekend!

Economic and market news

What happened overnight

Asian markets this morning are mostly continuing where US markets left off last night. As such we see Australia, South Korea, and Hong Kong all in the green this morning, whereas Japan and Shanghai are slightly down.

Futures in the US for Dow Jones, S&P500 and Nasdaq are all up this morning pointing to a continuation of yesterday's session where the US indices all gained between 0.85% and 1.51%.

In commodities, Brent is slightly up from its close yesterday, trading at around 83.85 USD/bbl.

What happened yesterday

In the US, productivity for Q1 2024 came in at 0.3% y/y well below consensus expectations of 0.8% y/y. The number marks a clear slowdown from the previous quarter which stood at 3.2% y/y.

The lower growth rate in productivity caused a pronounced uptick in non-farm unit labour costs, which rose to 4.7% y/y outstripping consensus expectations of 3.3% y/y, and far higher than the prior 0.4% y/y. Hence, this may also serve to somewhat explain why we saw more broad-based price increases in Q1 as well.

In Switzerland, April inflation surprised to the topside coming in at 1.4% y/y for the headline (consensus: 1.1% y/y, prior 1.0% y/y). Core inflation stood at 1.2% y/y (consensus: 0.9% y/y, prior 1.0% y/y). Both headline and core saw upticks to momentum with seasonally adjusted m/m rates increasing for both. The upwards move was however caused by volatile categories such as package holidays and air transport; hence we do not see cause for putting too much weight on April's uptick. Markets reacted to the inflation print by now only pricing in 15bp cut by the SNB's June meeting compared to 24bp pre the release. As the uptick was mainly driven by said volatile categories, we stick to our call for a 25bp cut in the June meeting by the SNB.

In Turkey, officials were cited by Bloomberg saying the country had stopped all trade with Israel halting any import and export to and from the country as of Thursday.

In Japan, data suggested authorities had indeed intervened in FX markets a second time this week as widely speculated by market participants, after the yen took flight and went from around 157.5 to as high as 153 against the dollar (USDJPY) in around 40 minutes. Data suggests authorities spend upwards of USD26.5bn intervening late Wednesday in a market otherwise relatively thin on liquidity at that time. Thus, this brings the total amount spent this week on intervention by Japanese authorities to upwards of USD61.5bn. This morning USDJPY is trading at around 152.95.

In Sweden, manufacturing PMI came in at 51.4 up from 50.4 last month. Subindices posed a somewhat mixed picture with new orders rising for both domestic and export categories, whereas production edged lower. The price index for raw materials and intermediate goods increased from 46.8 to 53.4, so a rather big jump and a larger jump than what we saw in the ISM US Manufacturing Prices Paid this week. However, the development should not give reason to concern as it is still below the index's average level in the period from the Great Recession to the pandemic when inflation was in line with the inflation target. Overall, the higher reading points to continued improvement in economic conditions.

In Norway, manufacturing PMI rose to 52.4 from 50.7 the month before. The PMI readings have so far this year mostly been in the range of 51-52, thus signalling positive but sub-trend growth in the manufacturing sector, despite a strong recovery in oil-related industries.

The OECD lifted its outlook for global growth. The organisation forecasts the global economy would achieve a growth rate of 3.1% this year, same as last year, and next year grow marginally more at 3.2%. Back in February the organization forecasted growth this year at 2.9%, and growth next year at 3.0%. The upwards revision was driven especially by a lift to Chinese growth boosted by public spending, as well as a higher US growth outlook the organization said helped offset less positive outlooks for Europe and Japan.

In the Czech Republic, the central bank lowered interest rates by 50bp in line with consensus expectations, hence the Czech policy rate now stands at 5.25%.