Solid ADP may imply solid payrolls

(31.03.2011) The ADP-report was solid and may also indicate that the payrolls report, due tomorrow, will show fairly good growth in employment.

By Knut A. Magnussen, Senior Economist at DNB Markets

DNB markets dealingroomThe US stock markets rose moderately yesterday, with the main indices up around 0.6%. All main European markets were also, wit the German Dax index rising 1.8%. Even the Nikkei rose somewhat tonight, despite a sharp drop in the Japanese PMI index. The PMI fell markedly (though not dramatically) from 52.9 to 46.4. This is the first indicator after the earthquake. In the FX market there have only been small movements since yesterday morning. The euro has strengthened somewhat, while it seems as the yen is on a weakening trend. As we move closer to the ECB-meeting and all signals are for a hike, this is benefitting the euro.

The US ADP-report on private employment came close to expectations for March. Employment grew by 201.000 and there were hence no market reactions to the report. The ADP-data may indicate solid growth also for the payroll report due tomorrow. Even if the ADP report was good at indicating payroll in February, the report was far tool optimistic in the previous two months. Hence it may be wise to take into account the possibility that payrolls may show a somewhat weaker picture. Nevertheless the expectations are for employment to grow by 190.000 in March. It seems as the democrats and the republicans will agree on spending cuts of 33 bill. USD for this year’s budget. If so, this will be the largest cut ever. 

The confidence indicator for the euro-zone fell somewhat in March, and the decline was somewhat larger than expected. However, the drop was far from dramatic. The level of the ESI-indicator still is consistent with GDP growing by some 2.5% in the first quarter. We can possibly rule out the changes of growth becoming that high. Furthermore not all of the sectors fell. The manufacturing index stayed unchanged in March. Consumers were more worried, butt his is hardly a surprise due to the recent global events in Japan and Libya. The smaller countries in the outskirts are still drag the indicator down, while the core countries show a much stronger development. Luckily the core countries are much bigger and more important for the overall performance. Today German unemployment and the flash estimate for CPI in the eurozone are due. Furthermore the results of the Irish stress tests of the banks will be published. 

Today, a row of important Norwegian data will be released. Of most importance are the consumption data: Retails sales and the broader consumption of good index. We expect that retail sales will decrease in February, for the third months in a row. Our forecast is based on weak report from shopping centres, which again may result from the fact that households struggles with very high electricity bills in the first quarter of this year. However, others are more optimistic than us and the consensus forecast is 0.5%. Consumption of goods data may turn out to be stronger, lifted by higher car sales in February. Furthermore credit growth (C2) is released, and is expected to stay unchanged at a good 6% in February. Norges Bank will announce its purchase of foreign currency for April. We think they may buy 200 mill. a day this months (up from zero in March).

Do you remember the Brazilian finance minister, Mr Mantega, who warned of a looming currency war last September? The reason was that the real had strengthened by almost 40%, mainly due to large capital inflow. The real is probably one of the most overvalued currencies in the world. This obviously is a large challenge to the export oriented industries in Brazil. Hence the authorities have decided to hike the tax rate on repatriation of capital from 5.4% to 6.0%. In addition the tax will comprise both ordinary loans and bonds and the maturity limit is raised from 3 months to one year. Nevertheless the effects may turn out to be rather limited.