Will the US continue its employment rebound?


Will the US continue its employment rebound?

A decline in coronavirus cases, ramp-up in vaccinations and a further loosening of lockdown restrictions are all expected to deliver a boost in monthly employment data due on Friday.

Figures from the labour department are expected to show non-farm payrolls climbed by 628,000 in March following a 379,000 increase in February, according to a Bloomberg survey of economists. The jobless rate is projected to slide further to 6 per cent, from 6.2 per cent last month.

The return of leisure and hospitality jobs could temper wage growth in the latest report, though the overall trend has pointed to a steady increase.

The report is one of the most closely watched among investors who have sold US government debt at the start of this year as they brace themselves for stronger inflation. The data are due to be released on Good Friday, a day with a shortened trading session in the bond market and a closure of the stock market.

Some economists have upgraded their outlook for growth in 2021, elevated by the vaccine rollout and the passage of President Joe Biden’s $1.9tn stimulus plan, which includes an extension to federally provided emergency unemployment assistance, loans to businesses and a third round of stimulus cheques.

Still, the US could see overall output return to pre-pandemic levels sooner than the labour market. Indeed, despite the recent gains, the world’s largest economy is still 9.5m jobs short of early 2020.

“That’s why it’s so important that the fiscal lever be used,” said Oren Klachkin, economist at Oxford Economics, “because we can really avoid unnecessary damage to the long-term outlook if we spend a bit more now to ensure that the economy has all the weapons needed to return to the way things were.” Mamta Badkar

Is Japan’s economy at a turning point?

One of the most closely watched economic data points in Japan — the Tankan survey of large manufacturers, overseen by its central bank — hit zero in the fourth quarter of 2019 and has been in negative territory ever since. But with a global economic recovery under way, some analysts in Tokyo anticipate it will turn positive this quarter when the latest survey is released on Wednesday.

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Although similar to business outlook surveys in other countries, the Tankan has two key differences: a huge sample of almost 10,000 companies and a near-total response rate of more than 99 per cent. Given its timeliness and depth, the Bank of Japan relies heavily on it to assess the state of the business cycle.

If the headline reading for large manufacturers rises above zero, from minus 10 in the fourth quarter of 2020, it will mark a significant moment in the recovery. The index subtracts companies reporting negative business conditions from those saying they are positive.

Takeshi Yamaguchi, chief economist at Morgan Stanley in Tokyo, forecasts a reading of plus 4. “This would be consistent with our own view that the impact of the latest state of emergency declaration on the economy should be temporary and limited,” he said.

Economists polled by Bloomberg, however, anticipate that the Tankan will rise significantly but remain in negative territory, at minus 1.

A strong reading on the Tankan could bring a fresh impetus to Japanese stocks — the Topix index is already up nearly 10 per cent this year — but it is unlikely to make much immediate difference to interest rates, after the BoJ conducted a policy review this month and decided to keep 10-year bond yields pinned at “around zero”. Robin Harding

Line chart of Tankan business conditions survey  showing Survey of big Japanese manufacturers expected to improve

Is the euro’s rally against the dollar over?

The divergent fortunes of Europe and the US in their fight against coronavirus sent the euro to a four-month low against the dollar last week, helping push the greenback to the highest level since November against a basket of major currencies.

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While the US economy has been buoyed by a speedy vaccine rollout, easing of virus restrictions and an enormous stimulus package under the Biden administration, Europe has been mired in vaccine disarray, surging coronavirus cases and extended lockdowns.

Rising yields on US government debt, which reflect falling demand for bonds, have also been lifting the dollar, long seen as a haven in times of financial stress.

This week, the euro faces a flurry of US economic data headwinds that could seal the end of a rally against the dollar that began last May. On Friday, the euro was trading almost 7 per cent stronger than the greenback compared with this time last year, having peaked on January 6 at $1.2343.

The outcome of a consumer confidence survey on Tuesday, manufacturing results on Thursday and monthly payrolls data on Friday are all expected to point to a resurgent American economy.

Meanwhile, this week’s inflation and retail sales data for the eurozone, the latter for the bloc’s powerhouse Germany on Thursday, could compound last week’s euro tumble.

“Economic reopening [in Europe] is likely to lag the US by several months, the implication being that hopes for a European catch-up will likely be disappointed and the euro’s strength may well be on its last legs,” said Seema Shah, chief strategist at Principal Global Investors. Eva Szalay

Line chart of Against the dollar ($ per €) showing Euro sinks against lofty dollar as Europe hit by vaccine disarray



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