GDP Day
US
USD is mixed and holding within its well-established year-to-date downtrend. President Donald Trump moved to soften the blow of auto tariffs by preventing the compounding of multiple tariffs on vehicles and auto parts and offering tax credits for domestic assembly. China is exempt from this tariff reprieve. While trade tensions may have peaked, ongoing uncertainties surrounding US trade policies and the potential negative economic impact of tariffs are likely to keep FX volatility elevated.
Importantly, the worsening US economic outlook has raised expectation of a more aggressive Fed funds rate cuts. Fed funds futures are now pricing a total of 125bps of cuts in the next 12 months vs. 100bps last week. As such, narrowing US-G6 2-year bond yield spreads can further weigh on USD.
The March JOLTS data showed that the US labor market began to weaken even before the uncertainties triggered by the escalation of President Trump’s trade war, marked by the April 2 “Liberation Day” tariffs.
JOLTS job openings undershot expectations and fell to its lowest level since September 2024 at 7192k (consensus: 7500k) vs. 7480k in February. Worrisomely, the Job opening rate ticked down 0.2pt to 4.3%, below the 4.5% level that typically precedes a sharp rise in unemployment. Not all the details were gloomy. The layoff rate dipped 0.1pts to 1.0%, the hiring rate was unchanged at 3.4% for a fourth consecutive month, and the quit rate increased 0.1pts to 2.1%.
The April Conference Board consumer confidence index painted a picture of an increasingly hesitant American consumer. The headline index fell more than expected to its lowest since May 2020 at 86.0 (consensus: 88.0) vs. 93.9 in March driven by deteriorating consumers’ expectations. The expectations index plunged 12.5 points to 54.4, the lowest level since October 2011. Moreover, the labor index (jobs plentiful minus jobs hard to get) fell 2.4 points to a seven-month low at 15.1, indicative of weaker labor market conditions. The ADP reports its private sector jobs estimate today and is expected at 115k vs. 155k in March (1:15pm London).
The US Q1 GDP report (1:30pm London) is forecast to show a significant slowdown in economic activity. Consensus sees the economy contracting by -0.2% SAAR vs. 2.4% in Q4. But model estimates point to a wide range of outcomes. The Atlanta Fed GDPNow model estimates Q1 growth adjusted for imports and exports of gold at -1.5% SAAR while the New York Fed Staff Nowcast is +2.6% SAAR.
The US Q1 employment cost index (ECI) (1:30pm London) and March PCE (3:00pm London) are the other noteworthy data on the docket today. The ECI is the Fed’s favorite wage data because it’s more comprehensive and controls for changes in the composition of employment. ECI is expected to rise 0.9% q/q vs 0.9% in Q4. On an annual basis, ECI wages & salaries eased from a high of 5.3% in Q2 2022 to 3.8% in Q4. Average hourly earnings and the Atlanta Fed wage growth tracker points to ECI wages & salaries annual growth between 3.8% and 4.2%. This would be consistent with the Fed’s 2% inflation stability goal as productivity growth is around 2%.
March headline PCE is expected to fall three ticks to 2.2% y/y, while core is expected to fall two ticks to 2.6% y/y. The Cleveland Fed’s Nowcast model has headline and core at 2.2% and 2.5%, respectively. Looking ahead to April, that model has headline and core at 2.1% and 2.5%, respectively.
EUROZONE
EUR/USD remains range-bound around 1.1400. EUR/USD has likely entered a short-term period of consolidation after overshooting the levels implied by nominal and real EU-US 2-year bond yield spreads.
Eurozone Q1 advanced GDP estimate is due today (10:00am London). In line with ECB projection, consensus sees real GDP growth 0.2% q/q vs. 0.2% in Q4. However, the growth outlook has darkened because of the trade war. Encouragingly, the ECB has room to deliver additional rate cuts to support growth as the disinflationary process remains well on track.
CANADA
USD/CAD is trading near important technical support at 1.3800. A break of this level would set the stage for a move down to 1.3400. However, we expect CAD to underperform on the crosses because of the severe negative impact of the US tariffs on the Canadian economy.
Canada’s February GDP print is the domestic highlight (1:30pm London). Statistics Canada advance estimate indicates that real GDP by industry was flat in February vs. 0.4% in January. The March GDP estimate will be published at the same time and will likely point at deteriorating economic activity.
CHINA
USD/CNH is trading heavy around 7.2600. China economic activity weakened in April. The composite PMI fell to a three-month low at 50.2 vs. 51.4 in March driven by downturn in manufacturing and slower non-manufacturing growth momentum. The manufacturing PMI fell more than expected to 49.0 (consensus: 49.7) vs. 50.5 in March. The non-manufacturing PMI eased to 50.4 (consensus: 50.6) vs. 50.8 in March. The private sector Caixin manufacturing PMI dipped to 50.4 (consensus: 49.7) vs. 51.2 in March.
The impact of the trade war is starting to be felt by China but we do not believe it will back down or soften its stance anytime soon. However, expect more stimulus measures in the coming weeks.
AUSTRALIA
AUD/USD recovered near the middle of its multi-day 0.6340-0.6440 range. Australia Q1 inflation was hotter than expected. Headline CPI printed at 2.4% y/y (consensus: 2.3%) vs. 2.4% in Q4 and the policy-relevant trimmed mean CPI was 2.9% y/y (consensus: 2.8%) vs. 3.3% in Q4. The trimmed mean CPI is tracking slightly above the RBA’s 2.7% projection and argues for a cautious easing cycle. Cash rate futures have virtually priced-out odds of a 50bps cut at the May 20 RBA policy meeting. Markets continue to fully discount a 25bps cut to 3.85% in May.
NEW ZEALAND
NZD ignored the mixed April ANZ business confidence index. Business confidence fell 8.2 points to 49.3, while expected own activity dipped 0.9 points to 47.7. Reported past activity, which has the best correlation to GDP, improved 10 points to 11, indicative of a recovery in economic activity.
At its April 8 meeting, the RBNZ cut the Official Cash Rate (OCR) by 25bps to 3.50% (widely expected) and noted it “has scope to lower the OCR further as appropriate”. The RBNZ warned that “the recently announced increases in global trade barriers weaken the outlook for global economic activity. On balance, these developments create downside risks to the outlook for economic activity and inflation in New Zealand.”
The swaps market price-in an additional 75bps of rate cuts in the next six months and the OCR to bottom around 2.75%. The risk is the RBNZ slashes the OCR towards the lower end of its 2% to 4% neutral range estimate.
