Key US data previews: FOMC and ADP employment report - Nomura

Analysts at Nomura offered their previews for the next key US data on the table.

Key Quotes:

"ADP employment report: In line with our forecast for BLS private payrolls, we expect ADP private employment to have gained additional 180k jobs in March (Consensus: 175k). ISM non-manufacturing: The headline ISM non-manufacturing index decreased slightly to 55.2 in March from 57.6 in February. Survey-based measures of business activity, while elevated, suggest no acceleration between March and April. The Philly Fed headline index decreased slightly in April compared to March, while the Dallas Fed service sector activity index declined in April for the third consecutive month. These readings imply some moderation in business sentiment. Service-providing payrolls decelerated in March, while retail trade employment posted a consecutive month of employment losses. Moreover, given the recent turmoil in the brick and mortar retail industry, it will be interesting to see how this index fares. In April, we expect the ISM nonmanufacturing index to remain elevated but decline slightly to 54.5 (Consensus: 55.8). 

FOMC meeting: We expect no change in short-term interest rate policy at the 2-3 May FOMC meeting. Recent Fedspeak indicates most members expect two more rate hikes later in 2017. While short-term interest rate policy will most likely remain unchanged at the upcoming meeting, markets will pay significant attention to the language of the FOMC statement at the end of the two-day meeting. Attention has shifted towards the Fed’s balance sheet policy in recent months with multiple speeches by Fed officials stressing the need for a well-communicated, smooth winding down. While there seems to be the consensus among committee members regarding the timing of balance sheet adjustment, many questions remain regarding the specifics of the process. We find it most likely that there will be no significant change in language as it relates to the balance sheet – not much has changed since the most recent FOMC meeting. However, there is some possibility that the committee will attempt to provide more clarity regarding specifics of the long-term trajectory of the adjustment process. Additionally, the language of the first two paragraphs of the post-meeting statement, as they relate to recent economic developments and expectations, will be under scrutiny as they may give additional clues on the committee’s intentions for the next rate hike. Given the data-dependency of monetary policy, it is important for the FOMC to describe the economic status in a way that it can manage market expectations. Spending data over Q1 remained soft since the last FOMC meeting. For example, domestic light vehicle sales in Q1 slowed to an average pace of 13.4m saar from Q4 average of 14.1m. Sales in April were weaker than expected, coming in at 13.1m saar. Moreover, the weakness in Q1 GDP growth estimate from the BEA last week, which slowed to a 0.7% q-o-q saar increase from a 2.1% gain in Q4, require some comment (Q1 GDP Comes in Below Expectations, First Insights, 28 April 2017). This development, combined with a downside surprise in the March employment report, core CPI, and core PCE inflation, presents FOMC officials with some challenge in terms of how to assess the overall health of the economy."