Today's economic calendar is a relatively light one, with most of the focus shifting to the American session. The European session is dominated by low-tier releases, which are unlikely to have a significant impact on central bank decisions. The market's reaction will likely be muted, as these releases are not expected to change the course of monetary policy for the respective central banks.
In the American session, the economic calendar is packed with key releases. Canadian jobs data, the US NFP report, and the University of Michigan Consumer Sentiment survey are all due for release. The Canadian economy is expected to add 10,000 jobs in April, a slight decrease from the 14,100 jobs added in March. The unemployment rate is expected to remain unchanged at 6.7%. The Bank of Canada's (BoC) recent monetary policy statement highlights the soft labour market, with subdued employment growth and job losses in sectors targeted by US tariffs.
The US NFP report is expected to show a significant decrease in job growth, with 62,000 jobs added in April, down from 178,000 in March. The unemployment rate is expected to remain at 4.3%. Average Hourly Earnings Year-Over-Year (Y/Y) is projected to be 3.8%, a slight increase from the previous 3.5%. The Month-Over-Month (M/M) metric is expected to be 0.3%, up from 0.2%.
The US labour market has been consistently surprising to the upside, and the latest jobless claims data further supports this trend. However, this tightening amid elevated energy prices, record-high stock markets, and the Federal Reserve's (Fed) failure to meet its 2% inflation target since 2021 could have negative implications for the future. The possibility of a war ending and the Strait of Hormuz reopening, leading to a decrease in oil prices, is a significant factor to consider.
In this scenario, the market might price in rate cuts for the Fed due to lower inflation worries, which could exacerbate the easing in financial conditions. This could result in increased economic activity, keeping inflation higher for longer or leading to an even faster tightening in the labour market and higher wages. Eventually, this could require rate hikes, setting the stage for a potential stock market crash and a strong rally in the US dollar as the Fed is forced to act.
Fed Governor Christopher J. Hammack's recent statement highlights a concern among businesses that an inflationary mindset is becoming entrenched in people's minds. This mindset could have long-term consequences for the economy.
The central bank speakers for the day include:
- 07:05 GMT/03:05 ET - ECB's Luis de Guindos (neutral - voter)
- 09:45 GMT/05:45 ET - Fed's Christopher J. Cook (neutral - voter)
- 16:00 GMT/12:00 ET - ECB's Isabel Schnabel (neutral - voter)
These speakers are expected to provide insights into the respective central banks' monetary policies and economic outlooks, but their statements are likely to be neutral, as they are voters within their respective institutions.
