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Week Ahead: Coronavirus and Inflation Will Take Center Stage as Jobs Numbers are Pondered

Traders will be watching CPI and PPI from both China and the US

Unless there is a prominent central bank interest rate decision, the second week of a month tends to slow down in terms of economic data.  That is indeed the case this month.  The pace of the re-openings and vaccine numbers will continue to be the headline stories this week however, given the disappointing NFP data on Friday which showed the US economy only added 266,000 jobs in April vs +980,000 expected, traders will be dissecting the print to see what went wrong.  We will also get CPI and PPI from China and the US.  The US Federal Reserve has told us that they are more concerned about the maximizing employment than controlling inflation.  Therefore, they may only peek at this data. And although earnings season is dying down, we do have a few notables to watch!

A break from Central Banks

With the RBA and the BOE behind us, the run of central bank meetings takes a week off.  The results thus far have been mixed.  The Fed, RBA, RBNZ, and BOJ are on hold, while the BOC and the BOE are tapering, sort of.  And on Friday, the ECB’s Kazaks said that the ECB could slow bond purchases at the June meeting.  However, note that the ECB increased purchases at the March meeting, so they may just be returning to the previous amount.   For those who can’t handle this week’s central bank hiatus, the Bank of Mexico will meet on Thursday afternoon, though they are expected to leave rates unchanged as inflation slowly increases and vaccine distribution continues.  Roughly 15% of population has been vaccinated.

Speaking of the coronavirus…….

In India and Brazil, the virus is still out of control.  India alone is racking up over 400,0000 A DAY! But help is on the way.  Countries with a surplus of vaccines, such as the US and UK, are sending medical supplies, ventilators, and vaccines, as India tries to reign in the virus. Japan has just extended their restrictions thru the end of May.  Remember that the Summer Olympics are approaching quickly, and Tokyo is still under a State of Emergency.  Singapore has also placed the country under restrictions for 3 weeks, limiting gatherings to no more than 5 people.  US President Joe Biden has said that he would waive the Intellectual Property rights so other companies can make the vaccine.  However, the problem seems to be getting the ingredients and manufacturing the vaccine, not necessarily on who makes it.  On the other side of the coin, countries such as the US, UK, Australia, and New Zealand are open for business. In the US, there is currently a surplus of vaccines as it seems that everyone who wants it, can get it.  There are even states giving incentives to people for getting the vaccine, such as free beer, free sporting event tickets, and some even contemplating giving money!

However, if traders look at the April jobs data, they may note a possible problem with these incentives

How can so many economists be so wrong? As we wrote about in the NFP recap: Whoa, big miss! What does this mean for the Fed?, the number of jobs added to the US economy was 266,000.  The average estimate of economists was +980,000!  In addition, the net revision of the February and March numbers was lower, which makes April’s figures even worse.  The re-openings are happening, right now.  The service industry is hiring, including restaurants, hotels, and seasonal hospitality.  However, after the disappointing Non-farm payroll figures were released, the US Chamber of Commerce of called for ending the extra unemploymen