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ISM Manufacturing Has Soared Over The Past Couple Of Months

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Today, ISM manufacturing for March is due out in the US. ISM manufacturing has soared over the past couple of months, emphasising that there is progress in manufacturing. In the same period, we have seen a divergence between ISM and PMI manufacturing emerge. Based on this, one would argue that ISM manufacturing could be in for a fall. However, regional manufacturing indices cont inued rising in March. Thus, there are mixed signals concerning the March ISM figures. We est imate that the ISM manufacturing fell back slight ly to 56.0 in March. Today also brings a number of speeches by FOMC members and we will also get the minutes from the 14-15 March FOMC meet ing on Wednesday. We will in part icular look for discussions on t he Fed’s desire t o begin shrinking its balance sheet , as Fed Chair Janet Yellen said at the press conference that the FOMC members discussed it at the meet ing.

The absolute highlight of the week in the US will be the labour market report for March on Friday. The labour market has been in good shape over the past two months and we expect this t rend to cont inue. We est imate a total of 160,000 new jobs were created in March of which the service sector provided 160,000 and manufacturing 15,000. We furthermore expect the unemployment rat e remained at 4.7% aft er last mont h’s decrease. As a warm -up for the labour market report , ADP employment for March is due out on Wednesday. Although not a perfect predictor, ADP tends to give a relat ively good idea of what to expect from the official jobs report .

In the euro area, it is today t ime for PMIs for both for single count ries and the eurozone. In general, consensus is looking for a consolidat ion at an already high level. If anything, the risk is also skewed to the downside in Europe as in the US. The unemployment figure for February is also due for release today. From its January level of 9.6%, we est imate unemployment fell to 9.5%, cont inuing its steady decline since 2013. Business sent iment suggests that unemployment will cont inue declining as the PMI employment indicator, especially within services, showed st rength in January and February.

Selected market news

After the lower-than-expected inflat ion data from Germany and Spain on Thursday, it was no major surprise that euro area HICP inflat ion on Friday came out at just 1.5% y/y and that core inflat ion dropped to 0.7% y/y in March. Together wit h last week’s comments from ECB officials, especially the Reuters stories of unconfirmed ‘ECB sources’ that the ECB was surprised about t he ‘hawkish’ market interpretation after its latest meet ing, the EUR money market curve has once again been repriced. The market is once again looking for the first rate hike in summer 2018. We cont inue to hold the view that the ECB will extend the QE programme into 2018 at the September ECB meet ing.

Spain has together with Portugal been the posit ive growth surprise in southern Europe. On Friday, this was acknowledged by S&P, which changed the out look for Spain from stable to posit ive, indicat ing that a rat ing upgrade could be next . S&P said that it believed the st rong economic performance would cont inue over the next two years.


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