US non-farm payrolls and the ongoing political grandstanding over the US debt ceiling look set to dominate the macro week ahead.
“Next week’s data highlight, the jobs report, and whether we get a deal on the debt ceiling to avert a potentially calamitous default, will be critical in assessing whether we will indeed get a rate hike,” ING Economics said.
“A deal and strong jobs numbers would undoubtedly fuel expectations of another rate hike,” ING added.
“However, signs of labour market softening and market angst over the lack of a resolution on the debt ceiling could quickly see those rate hike expectations evaporate,” ING added.
President Joe Biden has declared there will be no default and reports suggest talks on the debt ceiling have made substantial progress.
Reuters said the two sides are ‘only’ $70bn apart and most commentators expect a deal to be done ahead of the looming deadline of June 1, when the US could run out of cash to pay all of its financial obligations.
Deutsche Bank said: “There’s now some more optimism again around the debt ceiling, particularly after comments from Speaker McCarthy suggested that a deal was near, and that he would be staying in town over the long weekend to work on a deal.”
A deal over the weekend would certainly give markets a much needed boost after the recent volatility.
The health of the US jobs market will be in focus. JOLTS job vacancy data on Wednesday and ADP employment figures on Thursday are the appetisers before the main event Friday, US non-farm payrolls for May.
The US economy unexpectedly added 253,000 jobs in April, beating forecasts of 180,000 and following a downwardly revised 165,000 in March.
So far the jobs market has proved resilient in the face of the rate hikes by the US Federal Reserve and May’s figures will be the latest test as to whether the monetary tightening is feeding through to the labour market.
ING Economics predicts non-farm payrolls will rise 195,000 in May with the Trading Economics compiled consensus forecasting an increase of 180,000.
The US unemployment rate is expected to edge up to 3.5% in May from 3.4% in April.