US Macroeconomic Data Points to Impending Recession

Daily Analysis - 06/04/2015

The drop in US imports and exports points to a fading outlook for the US economy as growth expectations are revised lower. This might affect the Federal Reserve’s plans to raise interest rates as sell-side institutions pare forecasts for a hike towards the end of the year despite more hawkish tones from several FOMC members. Greece continues to struggle to find financing while Iran continues to make strides in nuclear negotiations.

Last Week in Brief

After a substantial drop in ADP nonfarm employment figures in the middle of last week confirmed the downtrend in unemployment gains, US nonfarm payrolls printed at 126,000. This marked the worst figure since 2013, missing expectations of 245,000 by a wide margin. There were some bright spots in US data including the gains in pending home sales and personal income, while personal spending and the deceleration in home price gains gave way to concerns that US economic expansion was faltering. The UK managed to outperform expectations, with the economy continuing to experience robust growth despite the headwinds from slackening inflation. Japanese figures continued to disappoint expectations with manufacturing crumbling -3.40% month over month, further confirmed by the disappointing Tankan survey data. The major political news came on the heels of a framework outline reached between Iran and the P5+1 negotiating teams. This sets the stage for June 30th as the deadline for finalizing a nuclear deal with Iran that would see sanctions gradually lifted for the banking and energy sectors.

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Week Ahead

With some markets still closed for the Easter Holiday, the week ahead is light on significant economic readings but will be marked by a deteriorating geopolitical outlook in certain hotspots. The main event of the week are the interest rate decisions from the United Kingdom and Australia. The Bank of England is largely expected to keep interest rate policy on hold at 0.50% even though economic data points to a robust economic expansion. The Reserve Bank of Australia is also widely forecast to keep rates on hold at 2.25% but there is potential for a surprise 25 basis point cut considering the worsening export environment for the mining sector. Other important events include services data from the United States, United Kingdom, and Eurozone, all of which are expected to remain firmly in expansionary territory. Lastly, a large repayment is due from Greece on April 9th to the IMF which could set the wheels in motion for an eventual Greek exit.

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