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Market Comment
Market awaits US payrolls data
04 May 2012
Conall Mac Coille
In recent weeks there has been growing unease that the pace of the US recovery may be softening heading into the second quarter of 2012. So today's US non-farm payrolls report for April could be a key point in guiding expectations for profits and activity in Q2.
Indeed, last month, the news that payrolls grew by just 120,000 in March proved to be a key catalyst for markets, with concern that the US economy might be slowing reinforced by weak manufacturing data and rising initial jobless claims. The market expects non-farm payrolls to rise by 160,000, up from last month but well down on levels exceeding 200,000 in January and February.
Attention will also be focused on the final release of European service sector PMI surveys for Germany, France and Italy. The renewed decline in both manufacturing and service sector PMIs through March and April has highlighted that euro area GDP is still contracting. No revisions from the preliminary releases are expected when the final data are released today. But any downward revision could reinforce negative views on the outlook for euro area GDP growth.
Despite the renewed deterioration in short-term indicators of economic activity, the ECB decided to keep interest rates on hold at 1.0% at its monthly policy meeting yesterday. At his press conference, ECB president Draghi said that economic activity had stabilised in Q1 but that uncertainty had increased over the past month. Draghi indicated that the ECB would reassess the growth outlook at its next monthly policy meeting. So, the prospect of a rate cut cannot be ruled out. Rather, the ECB seems to be waiting to see more short-term indicators for Q2 before deciding if there has been a marked deterioration in the outlook for growth.