The turn of May and June may bring important readings of macroeconomic data, especially from the United States. This is important as the outlook for considering monetary tightening in the US may depend on these publications.
Although the week begins with a day off in the UK and the US, it will end with key data from the US labor market. The May employment report is to show a potential increase of 650,000 jobs, following a smaller than expected April increase of 266,000, and the unemployment rate may fall below 6% for the first time since March 2020 when the pandemic hit the labor market. The improvement in the U.S. labor market is key for the Federal Reserve in deciding whether to open discussions on scaling back its asset purchase program.
However, there are voices coming out of the Fed that more time is needed for the situation to stabilize and that inflation will be transitory and will not alter current monetary policy. The Fed needs to think about one more problem, though, because last week was a record for reverse repo transactions, through which the central bank pulls excess liquidity from the market. If anything should change, it would be to try to stabilize the money market situation.
In the U.S., the ISM PMI survey should signal solid manufacturing and services growth in May, thanks to efforts to reopen the country, continued government support and one of the world's most successful vaccination campaigns. Other important releases include factory orders, ADP employment change and the Dallas Fed manufacturing index.
As the vaccine-driven reopening of the economy gathers pace, in the UK, the final Markit PMIs may confirm that UK private sector companies, supported by record growth across the manufacturing sector and the fastest output growth since October 2013 in the services sector, had their best month in two decades in May. Nevertheless, preliminary data showed that cost pressures were the strongest in almost thirteen years. Meanwhile, preliminary data could be expected to show that UK construction growth remains near 6.5-year highs.
In Europe, preliminary Eurozone inflation data for May could show accelerating price pressures, with the headline figures likely to hit the ECB's target of just under 2%, although the central bank attributes this mainly to a low base effect from last year. Meanwhile, investors will also be keeping an eye on the final Markit PMI results for the eurozone, Germany and France, while Italy and Spain will publish their preliminary estimates.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
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