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  1. Wealth
March 28, 2011

Macro Monday

By Spear's

As a rather eventful month draws to a close, there will be several macro indicators to keep investors on their toes, including US employment and global manufacturing data

As a rather eventful month draws to a close, there will be several macro indicators to keep investors on their toes, including US employment and global manufacturing data. There are also a couple of US housing indicators that are likely to catch some attention after the shockingly bad February new home sales reading.

4cast expects the pending home sales reading to slide for a third consecutive month, showing a 1% decline, a reading which could unnerve some investors as the consensus expects a 0.4% rise. Apart from those pending home sales, there is little in terms of housing data, with only the S&P Case-Shiller Home Price reading due on Tuesday. The 20-city home price index has dropped for five months in a row, and the January reading is seen declining 0.4% m/m.

Most of the data this week, in fact, will be focused on manufacturing and jobs. The Chicago PMI on Thursday will serve as an appetizer to a flurry of manufacturing data on Friday, including EU & UK PMIs, US manufacturing ISM and China PMIs.

The final EU PMI manufacturing release looks set to confirm the flash reading of 57.7 in March, down from 59 in February. HSBC suggests that any revision is more likely to be down than up given the renewed rise in the oil price over the past two weeks, which may have influenced the later respondents to the survey.

Over in the US, the Chicago PMI for March is forecast to slip to 69 from 71.2. This would be the first fall after four consecutive increases. Similarly, the US ISM March manufacturing report is expected to slip to 60.8 from 61.4 after seven consecutive months of gains.

Regarding the China PMI, Goldman Sachs expects the gauge to show a visible seasonal rebound. Broker notes that since the start of the series in 2005, it rebounded in every March by 3% or more. Broker suspects this seasonal bias could be related to the Lunar New Year distortions. However, it believes the underlying growth momentum of the economy has been slowing down and the magnitude of the rise in the official China PMI this March is likely to be less than its historical average.

The general consensus is that the UK manufacturing PMI came off its peak slightly in March, but that it should remain high at around 60.7. 4cast is going for a more bullish outcome and pencils in a rise to 61.7, arguing the CBI Industrial trends survey headline order books balance rose into positive territory for the first time in three years. Elsewhere in the UK, the third and final estimate of UK 4Q GDP (on Tuesday) is expected to be confirmed a -0.6% contraction.

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As well as the manufacturing reports, key monthly US jobs numbers are due during the week. The ADP employment will be monitored on Wednesday to see if the strong trend in private-sector jobs growth has been sustained in March. Consensus looks for ADP employment to rise by +205k. US nonfarm payrolls, due on 1 April, are seen by a consensus of analysts at +190k, with the unemployment rate at 8.9%. 4cast is looking for a +215k reading in the nonfarm payrolls, ahead of consensus. The economic data provider/forecaster expects growth in the private payrolls component to extend to +240k after a +222k jump in February, and the largest gain since December 2007.

Looking at it from another angle, HSBC is expecting a +175k gain in the nonfarm payrolls reading. Broker says there are some similarities between what is happening now and what occurred in the jobless recovery of the previous economic expansion. It notes the unemployment rate peaked in June 2003, but financial markets waited for eight months before there was finally a break-out payroll increase of +308k in March 2004. This time around, HSBC says the unemployment rate has fallen sharply since last November, but there has not yet been an outsized gain in payrolls.

Pawan Girglani – S&P MarketScope, ems@sandp.com

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